Evening Brief – 02.28.24
Data-Driven
Quantitative hedge funds delivered a spectacular 4.3% monthly return in January, while managed futures strategies returned to positive territory as the hedge fund industry got off to a strong start in 2024, according to new PivotalPath data.
Pivotal Path’s primary industry-wide Composite Index rose 1.1% in January, adding to its 7.6% annual return in 2023. Data also shows that credit hedge funds continue to deliver strong alpha for investors, while equity-focused managers have become more optimistic about the stock markets.
Equity strategies, as well as global macro, drove January’s hedge fund returns, which increased by 1.8% after a lackluster 1.3% return the previous year.
The equity hedge fund sector index also performed well, climbing 1.5% after leading the list in 2023 with a 14.1% return, fueled by the continued boom in US equities.
Managed futures and CTAs, which fell 2.4% last year, rebounded with a 1.5% return. Credit and multi-strategy managers each gained 1.2%, equity diversified gained 0.7%, and event-driven hedge funds gained 0.2%.
The hedge fund research and intelligence provider’s analysis found that stock-picking hedge funds may be growing more positive. It stated that the stock sector index’s exposure to the S&P 500 was 0.43 over the previous 12 months through January, up from the recent low of 0.25 in September 2023 and the highest level since February 2022.
“This implies that managers, on average, are the most optimistic regarding equity markets since before inflation became a major market concern,” PivotalPath noted.
Its analysis also looked at alpha creation and manager dispersion, noting that its Composite Index generated a 3.4% positive alpha relative to the S&P 500 over the last year.
Credit hedge funds continued to generate the highest alpha, at 6.2%, throughout the 12-month period ending in January 2024. Over the same time span, managed futures alpha increased to 5.6%, compared to 5.2% for global macro hedge funds. Meanwhile, event-driven fell into negative alpha territory, reaching -1.4%.
Credit opportunities have recently received increased scrutiny from allocators, as higher interest rates generally favor credit strategies.
According to Barclays’ most recent annual Global Hedge Fund Industry Outlook and Trends study, 33% of investors want to increase their allocation to credit long/short hedge funds in 2024, with similar amounts potentially increasing exposure to distressed credit strategies.
“Credit in general has garnered client attention, particularly liquid and opportunistic long/short credit that can trade across the capital structure and jump between instruments,” PivotalPath observed. “Interest in pure distressed funds remains, although allocations are frozen as default rates remain low within a resilient economy.”
Overall, 72% of hedge funds tracked by PivotalPath ended in the black, marginally lower than the 80% in 2023.
PivotalPath monitors the performance of over 2,500 institutionally relevant hedge funds, totaling over $3 trillion in industry assets and representing over $300 billion in client hedge fund capital.