Stock-Picking Dominated October HF Performance — Evening Brief – 11.20.24

New data reveals that stock-picking hedge funds and short-selling specialists were able to effectively navigate the equity market hiccup in October. Despite the recent dispersion, managers continued to generate alpha for investors, according to hedge fund research and intelligence provider PivotalPath.

PivotalPath’s main industry-wide Hedge Fund Composite index experienced an 8.5% year-to-date increase, as hedge funds generated a modest 0.1% return in October, even though equity markets experienced a decline last month. Approximately 58% of all managers monitored by PivotalPath were in the black, with an average return of 2.07%, while the average loss was 2.53%.

Stock-picking hedge funds emerged as the most prominent strategy, with a 1.5% increase in October. As a result, PivotalPath’s Equity sector index has increased by 14.6% since the beginning of 2024.

Credit hedge funds reported a 0.9% increase, while multi-strategy managers (0.7%) and event-driven strategies (0.6%) also made modest gains. Even though computer-based quant equity hedge funds experienced a 0.7% decline last month, their year-to-date performance remains in the double digits at 11.7%.

Conversely, the Managed Futures index, which measures trend-following hedge funds, experienced a 2.3% decline last month. Most funds were adversely affected by their short positions on the U.S. dollar and their long positions on bonds, PivotalPath explained. The sector’s year-to-date performance has been hit by the recent challenges faced by managed futures, as managers have only achieved a 0.8% increase over the 10-month period ending in October.

Global macro strategies also dipped 0.4% for the month and are now up 3.2% for the year. Hedge funds’ modest monthly advance contrasted with a broader stock market stumble in October, amid mixed earnings results – particularly among large tech names – and political uncertainty ahead of the U.S. election.

In its latest Pivotal Point of View hedge fund update, PivotalPath pointed to managers’ “strong belief” in the U.S. equity market’s positive fundamentals despite a choppy October.

“Hedge fund equity strategies continued to illustrate how strong stock pickers and short specialists have made the most of ongoing dispersion in the markets,” said PivotalPath, which measures the monthly performances of more than 2,800 institutionally relevant hedge funds, spanning more than $3 trillion of industry assets, on behalf of $340 billion in client hedge fund capital.

In comparison to the S&P 500, credit (10%), multi-strategy (8.8%), and equity hedge funds (8.5%) generated the highest alpha over the 12-month rolling period ending in October 2024. PivotalPath’s industry-wide Composite index generated 6.4% of alpha.