Hedge Funds Roll in the Dough Post Election — Evening Brief – 12.11.24
Hedge funds achieved their most significant monthly gain of 2024, as managers across several strategies leveraged the results of November’s presidential election to elevate year-to-date profits into double-digit figures.
The primary Fund Weighted Composite Index of industry tracker Hedge Fund Research increased by 2.58% in November. The increase elevates the benchmark, which assesses single manager strategies across all global hedge fund strategies, by 10.40% year-to-date.
Kenneth Heinz, president of HFR in Chicago, observed that hedge fund managers aligned their strategies with anticipations of an improving economy, reduced taxes, pro-business regulations, and an increase in M&A activity following Donald Trump’s win, with long/short equity funds and event-driven strategies spearheading the November surge.
About 75% of all hedge funds tracked by HFR generated positive performances for investors– a jump from 45% in October.
Equity-focused hedge funds surpassed other strategy types in both monthly performance and year-to-date returns. Stock-picking methods, as indicated by HFR’s Equity Hedge (Total) Index, yielded an average increase of 3.38% in November, elevating year-to-date returns to 13.43%.
Prominent performers were tech-oriented equity funds, which increased by 6.72% following the post-U.S. election rally in tech stocks and are now up more than 17% year-to-date. Computer-driven quant directional equity managers increased by 6.13%, resulting in an approximate annual gain of 21.5%. Strategies centered on fundamental value achieved a return of 4.24%, while multi-strategy equity funds recorded a gain of 3.92%.
In November, event-driven hedge funds, which capitalize on stock mispricings and valuation anomalies arising from mergers & acquisitions, bankruptcies, takeovers, and other business events, experienced a gain of 3.33%, according to HFR.
Activist hedge funds led the way, surging 4.85% for the month, followed closely by multi-strategy funds (4.48%), special situations managers (3.37%), and distressed/restructuring strategies (2.93%). As a result of November’s gains, the event driven sector has now risen 10.78% since the start of the year.
Macro hedge funds experienced a volatile year, marked by four consecutive months of losses from May to August. However, the sector rebounded in November, as U.S. interest rates fluctuated significantly, and managers adjusted their strategies in anticipation of macroeconomic policy changes under the incoming Trump administration.
Macro managers added 1.93% last month, with active trading strategies, systematic diversified macro managers and multi-strategy macro funds all rising more than 2%. Year-to-date, macro hedge funds’ returns now stand at 4.85%.
The gap between hedge fund winners and losers also widened notably throughout November. The top decile of hedge funds tracked by HFR gained an average of 12.3% last month, while the bottom decile fell by an average of 4.9% – a top-to-bottom dispersion of 17.2%. That compares to a 11.6% gap the previous month.
Looking ahead, Heinz pointed to increased expectations for further hedge fund gains and asset growth next year as growing risk-on sentiment surrounding the new Trump administration. But he warned: “Despite enthusiasm for the continuation of this powerful trend, managers are also likely to position for unexpected volatility and dislocations as new policies impact global trade and commerce.”