Daily Management Review

Worst Performance Since March 2020 In November For Hedge Funds Due To Omicron-Linked Volatility


Worst Performance Since March 2020 In November For Hedge Funds Due To Omicron-Linked Volatility
November appears to have been the worst month for global hedge fund performance since the novel coronavirus initially shut down economies at the outset of the Covid-19 epidemic, thanks to Omicron-fueled market volatility.
According to early statistics from industry analysis company PivotalPath, hedge funds were down by 1.6 per cent to 2 per cent in November, their lowest monthly performance since March 2020.
The probable losses would be a setback in what has been a consistent year for performance in the sector thus far. According to HedgeFund Research (HFR), the average hedge fund gained 11.4 per cent in the first ten months of 2021 which is lower than the 11.8 per cent last year and 10.5 per cent in 2019 in the same period.
According to Robert Sears, chief investment officer of London-based Capital Generation Partners, which has invests in hedge funds, the losses have been “quite widespread".
"A few of our managers got a little bit of positive performance but I think, in aggregate, it's going to be down," he said.
As Omicron fears rocked equities in the closing days of November, the S&P 500 plummeted 3.9 per cent from its record high, and ended the month with a roughly 1 per cent loss. However, certain sectors of the market were hurt worse than others, with the S&P's energy sector dropping 6.2 per cent and financials shedding 5.9 per cent last month.
Volatility increased across asset classes in November, with concerns about the Federal Reserve's monetary policies fuelling fluctuations in bond and currency markets, as well as stock markets.
Some equity-focused funds were caught off guard by market fluctuations, as losses in negative wagers against equities suddenly reversed.
Long-short strategies in Europe and the United States lost 1.5 per cent to 2 per cent between November 25 and December 1, according to Jean Baptiste Berthon, senior strategist at Paris-based Lyxor Asset Management, which invests in hedge funds.
Moderna's stock, for example, rose 30 per cent between November 18 and November 30, despite the fact that several hedge funds had bet against it, said Sears. According to statistics from S3 Partners, short interest in Moderna was 14.4 million shares, or 4.1 per cent of the float, as of November 18.
Meanwhile, computer-driven trend-following hedge funds saw a "substantial" decline in performance of 4 per cent to 5 per cent between November 25 and December 1, with losses in fixed income, commodities, and stocks, producing a "perfect storm," according to Berthon.
He said that so-called 'macro' hedge funds, which bet on macroeconomic trends, lost closer to 2 per cent due to bond positioning, while merger-arbitrage funds, which make deal calls, were modestly up.
Some hedge funds are expected to reduce risk this month in order to maintain gains in what has been a strong year for them, according to Berthon.
"We're now three weeks before the end of the year, so it's unlikely we'll see funds trying to be heroes and trying to re-instate major play to capture the rebound," he said.