by Macroview Market shakeups in recent weeks have tested investors’ resilience. So far, hedge funds appear to have withstood the crisis, and in certain cases even provided portfolios downside protection while traditional asset classes tumbled. August was a month that many would rather forget, with markets witnessing a painful correction as the Chinese slowdown exacerbated global deflation fears. Volatility spiked to four-year highs and market conditions became challenging – to say the least – but hedge funds seem to have weathered the storm. While they weren’t immune to the shock, according to first estimates all hedge fund strategies are reporting relative outperformance compared with traditional investments. Tactical traders are the asset class’s outperformers, having gained on their short energy and short Asia FX exposure, despite losses on their equity books and short euro positions. In the equity hedge space, managers held up less well when widely-held names such as Amazon and Facebook sold off – as did overweighed sectors like biotech and semiconductors. Nevertheless, alpha creation was seen on certain managers’ short books, more so in Europe than in the US. Crowded positioning proved painful for the event-driven universe as well, with names like Allergan plummeting.
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Market shakeups in recent weeks have tested investors’ resilience. So far, hedge funds appear to have withstood the crisis, and in certain cases even provided portfolios downside protection while traditional asset classes tumbled.
August was a month that many would rather forget, with markets witnessing a painful correction as the Chinese slowdown exacerbated global deflation fears. Volatility spiked to four-year highs and market conditions became challenging – to say the least – but hedge funds seem to have weathered the storm.
- While they weren’t immune to the shock, according to first estimates all hedge fund strategies are reporting relative outperformance compared with traditional investments. Tactical traders are the asset class’s outperformers, having gained on their short energy and short Asia FX exposure, despite losses on their equity books and short euro positions.
- In the equity hedge space, managers held up less well when widely-held names such as Amazon and Facebook sold off – as did overweighed sectors like biotech and semiconductors. Nevertheless, alpha creation was seen on certain managers’ short books, more so in Europe than in the US. Crowded positioning proved painful for the event-driven universe as well, with names like Allergan plummeting.
- While we wait for the situation to stabilise before drawing our final conclusions, managers are actively identifying attractive entry points for high-quality names, while others are adding risk to M&A positions.