By Peter Laurelli, CFA | eVestment Global Head of Research
Overall returns were positive and the majority (59%) of reporting products were positive, but there were segments which did not perform well in what was mostly a rising security/asset price environment. Segments which performed well mainly operated in equity and credit markets across broad corporate capital structures. Distressed funds produced the largest average gains during the month of any primary strategy.
Despite what was generally a positive month, it was a disappointing start to the year for some of the industry’s larger managers. Among the ten largest reporting products for January, seven were down to begin the year. Even among a broader large-fund group, those products with greater than $5 billion in AUM, the average return for January was -1.38%.
After a very positive fourth quarter which turned the year around for most managed futures strategies, the group produced the only negative average returns among primary strategies in January. The largest reporting managers generally underperformed the rest of the managed futures universe.
Macro managers produced very slightly positive results for the month, but again many (not all) of the larger products produced losses during the month. Interestingly, the best performers among larger macro funds in January were those who performed best in 2020.
The largest difference between a broad universe and its largest products’ January returns was within long/short equity. Surprisingly, in a universe where 93% of reporting managers were positive during the month, every single one of the largest reporting products reported negative results.
Emerging markets returns were varied again by country of focus. Funds focused on China’s markets were generally positive producing the best result in January, while those focused on Brazil were at the other end of the spectrum, as it was during 2020.
Hedge fund performance is a difficult topic to apply broad statements of success or underperformance. Despite losses among some influential segmentations, within almost every major strategy there are managers at either end of the spectrum.
The most important takeaway for investors is to understand why for each individual manager their approach and methodologies are either working, or not, in the current environment and whether that is a near-term aberration or longer-term issue with how those philosophies fit into current market dynamics. The variation of returns around the industry in 2020 at the very least should result in heightened communication and enabling a deeper understanding of each individual investors portfolio of managers.