Category: Fund Of Hegde Fund

Alternative Markets Outlook H2 2019 and Macro Outlook August 2019

13/8/2019

Alternative Markets Outlook H2 2019

The asset management industry experienced significant declines in 2018. Alternative assets achieved the best performance among non traditional long asset classes. The popularity of actively managed assets is decreasing for the last 15 years, while passive solutions and alternatives are gaining more attention, which is likely to continue. It is expected that the industry will experience more volatile markets, increased competition and more economic uncertainty. Especially the uncertainties will increase, for example how the US-Chinese trade war will develop, with the background of new elections in the US in 2020. Europe's uncertainty will peak on how Brexit is executed at the end of October.

Hedge Funds

Hedge funds remain strong in July after a very profitable H1 2019 and reached a new record level of market capitalization of $3.273tn. In July, hedge funds yielded positive results again. The aggregated average performance of hedge in the current year is at 7.67%, which is likely to continue. Figure 1 shows the performance of several hedge fund strategies. Noteworthy is that none of them generated negative return. The interest rate cut of the FED is likely to increase the attractiveness of hedge funds further.

Investors are currently moving cash from equity strategies to lower beta strategies, as equity markets have reached all-time highs. For H1 2019, targeted strategies were mostly credit multi-strategy and relative value arbitrage strategies. However, this shifted to macro, CTA, currency and commodity funds in July 2019 and is likely to continue during H2 2019. Despite the trade war between the US and China, the allocated capital from hedge funds in China increased further. This conflict is likely to shape the general performance of financial markets, especially in the hedge fund industry. Due to current and expected interest rate decisions from most central banks as well as the volatility of currencies, hedge funds are looking for safe havens. Gold is experiencing an increased demand, causing the price per ounce to rise to the highest level since 2016 and $1600 or even $2000 is forecasted from major US investment banks.

Figure 1: Performance of Different Hedge Fund Strategies from June 2018 to June 2019: August 2019, Source: FundMap

Alternative Markets Update H1 2019

30/7/2019

Alternative Markets Update H1 2019

Hedge Funds
After the difficulties for hedge funds in 2018, 2019 started strong, despite the current uncertainties, such as the Brexit, the European elections and the trade war. Only in May, there were some difficulties. This short downturn was offset and more than compensated in June, which yielded extraordinary results. Our best performing strategy was the cryptocurrency strategy, followed by US equity disruptive technology and US equity high conviction. The best performing asset class was tactical trading, which achieved a 30.78% YTD, as shown in figure 1. Furthermore, all strategies had positive return in H1 2019.

Figure 1: Overview of Performance of Different Hedge Fund Strategies: June 2019, Source: Stone Mountain Capital Research

Alternative Markets Update July 2019

12/7/2019

Alternative Markets Update July 2019

Hedge funds have achieved their best half year within the last decade, despite the controversies about hedge funds in the last year. Hedge funds overall have gained 5.7% since January 2019. Especially the month June was profitable, as hedge fund managers achieved a performance of 1.82%, which originates from a strong equity market. As of the beginning of July, only the long volatility strategy yielded negative returns, while the equity long bias strategy realized the highest gain with 10.56% in 2019 as per the Eurekahedge report below.

Figure 1: Hedge Fund Strategy Return Map, Source: Eurekahedge July 2019

Alternative Markets Update II Q1 2019

29/4/2019

Alternative Markets Update Q1 2019

Hedge Funds

Bad performance, pressure for lower fees and redemption constituted the environment that hedge funds faced as they were entering 2019. Despite the negativity in the industry, hedge funds proved themselves resilient and posted their best quarterly performance in a decade. Rally in equity markets was the main driver of the strong performance, but their reluctance to take full long positions in equities led to relative underperformance. Equity strategies are the biggest winners across the different strategies according to data from Preqin with CTAs starting to perform in March after a very disappointing start.

Although investors continued redeeming from the asset class, the assets under management in the industry rose mainly from capital gains and according to HFR, they reached to almost $3.2 trillion globally. Investors are trying to diversify their hedge fund portfolio exposure by region, sector and strategy.

Figure 1. Hedge Fund Strategies Performance 1Q2019, Source: Preqin

Our in-house strategies followed a same pattern during the first quarter of the year, with three out of our top five managers being US Equity focused funds. The manager that invests in high conviction ideas of carefully selected hedge fund managers is enjoying a very strong quarter followed by a US equity strategy focussed on TMT, helthcare and consumer sectors with specific interest in innovation and disruptive technologies. The recent rally in cryptocurrencies led our active altcoin manager to strong performance during February and March, bringing the strategy in our top five table for the first time since 2017. Our activist strategy suffered in March, despite a really strong performance on its underlying portfolio during January and February. Finally, our discretionary global macro strategy had one of its best months ever since inception posting an astonishing +15.27%, mainly from running long duration positions in the US, Australia and New Zealand and mixed duration positioning in Europe, complemented by bond auction trading gains.

Table 1. In-House Strategies Performance 1Q2019, Source: Stone Mountain Capital Research

Alternatives Market Review 2018 and Outlook 2019

30/1/2019

Alternative Markets Review 2018

2018 started as strongly as it finished in 2017, but spikes in volatility caught hedge funds unprepared and highlighted the weaknesses of the industry. The rest of the year continued in the same pattern with major political risks adding to the problem such as Brexit outcome, European elections, end of quantitative easing and trade war. The fourth quarter and equities sell-off since October ruined hedge funds hopes to rebound and sank them deeper into their losses. Event-driven and equity hedge strategies were the worst performers among hedge funds, followed by systematic CTA and macro strategies. For our in-house strategies, the scenery was slightly altered as the worst performing asset class was tactical trading. Underperformance of cryptocurrency and CTAs are the main drivers of the underperformance compared to other indices, despite the strong performance of our global macro and market neutral strategies. Equities globally suffered severe losses, similar to the majority of our in-house strategies. Our niche equity strategies focusing on disruptive techno-

logies and directors' dealing though posted strong returns and constitute our best two performing strategies for 2018, consequently leading to a relative outperformance of peer indices. Direct lending and structured credit enjoyed a good year assisting in our credit index's outperformance. Only two out of eight strategies posted losses for a year, when equity and credit largely disappointed their investors. Overall, our cross-asset and single manager index posted losses for the year due to our tactical trading underperformance, but still performed better than the majority of the individual indices.

Alternatives Market Outlook H2 2018

16/8/2018

STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL.88

Figure 1. Stone Mountain Capital In-House Indices vs. Major Benchmark Indices Hedge Funds and Long Only in H1 2018, Stone Mountain Capital Research SMC strategy indices are not investable products but are used as indication of our managers’ performance and are calculated with the equally-weighted method.

H1 2018 was rather disappointing for hedge funds, seeing outflows by end of the second quarter. According to data from Hedge Fund Research, investors invested more capital in equity hedge strategies, while they redeemed from event-driven, macro and relative value strategies. The shift in strategies was driven by the rising concerns over potential trade war, monetary policies from central banks, including interest rate decisions, and political uncertainty in major European countries. Performance was strong for strategies focusing on tech, and our equity long short manager sits on the top of our top-performing table. The divergence in central bank policies has favoured macro strategies focusing on traditional relative value bets and event-driven strategies that have catalyst elements. Our top performing strategies table consists of discretionary macro focusing on relative value trading and equity strategies that are engaged in activism and have a niche in US equities markets.

Our in-house strategies in credit, equity and fund of funds, as measured by our indices, have performed better in the first half of the year than their traditional and alternative peers. Tactical trading is still lagging due to the struggling performance of the actively managed altcoin strategy this year mainly driven by falling bitcoin prices. Equities are the top performing and the bucket that has the most representatives in the top-5 performing table, followed by credit/fixed income strategies.

<<Previous