Hedge funds gather pace ahead of year end, as equities, event driven and crypto strategies soar in market upturn

Financial data

Hedge funds are storming into the final weeks of 2020, having notched up some of their biggest gains in decades on the back of the US presidential result and positive developments in the search for a coronavirus vaccine, with equity, event driven and cryptocurrency strategies all riding high last month.

Hedge Fund Research’s main Fund Weighted Composite Index grew 6.24 per cent last month, its best monthly return since December 1999, and its second biggest monthly rise since the index launched 30 years ago.

Since the start of 2020, the index – a global equal-weighted measure of more than 1,400 single manager hedge fund – has advanced 7.32 per cent.

Similarly, HFRI’s investable benchmark – the HFRI 500 Fund Weighted Composite Index – rose 4.6 per cent in November, putting its year-to-date return at 5.6 per cent.

Hedge funds generated record performance across a broad range of strategies, including equities, event driven and cryptocurrencies, said Kenneth Heinz, HFR president.

Equity-focused managers led the hedge fund pack – powered by the global stock market surge following November’s positive developments – gaining 8.73 per cent. Year-to-date, the index is up almost 12 per cent.

All equity sub-strategies were in positive territory for the month. Multi-strategy, fundamental value, and quantitative directional strategies all soared more than 10 per cent, while fundamental growth hedge funds gained more than 8.83 per cent and energy/basic materials strategies added 7.96 per cent.

Meanwhile, event driven strategies picked up 7.56 per cent last month, and have risen 5.37 per cent since the start of 2020. Activist hedge funds topped the event driven category, soaring more than 12 per cent in November to put them into positive territory year-to-date at 6.66 per cent, while special situations funds added 9.79 per cent last month.

Relative value hedge fund managers gained 4.23 per cent amid November’s rally - with all sub-strategies in positive territory - driving the HFRI Relative Value (Total) Index up 2.67 per cent year-to-date. Here, fixed income sovereign-focused funds gained 4.20 per cent last month, while multi-strategy funds added 3.51 per cent.

Hedge funds that trade digital currencies have enjoyed stellar performances amid the assets stratospheric surge this year. HFRI’s Blockchain Composite Index – a performance measure of hedge funds trading blockchain digital currency and distributed ledger technologies (DLT) – rose 53 per cent in November, and has grown 159 per cent over the course of the year.

The Cryptocurrency Index – which track fundamental and quant managers trading cryptocurrencies directly - is up 166 per cent year-to-date, having surged 57 per cent last month.

However, macro-focused hedge fund managers experienced a mixed month. HFRI’s main macro benchmark was in positive territory, at 1.29 per cent, and is now up 1.36 per cent over the 11-month period.

But active trading, commodities, and currency-focused hedge funds failed to capitalise on November’s market upswing, each finishing the month in the red. Discretionary thematic managers fared better, advancing 2.89 per cent, while multi-strategy macro (1.38 per cent) and systematic diversified funds (1.85 per cent) were also able to take advantage of developments.