December 2023 Hedge Fund Performance And Data

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HFA Staff
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Hazelton Capital Partners

PivotalPath has released their monthly report, the Pivotal Point Of View, which measures performance among more than 2,500 institutionally-relevant hedge funds, as well as 40+ different hedge fund strategies and $3T in total industry assets.

At a high level, the big takeaways this month were:

  • The PivotalPath Composite Index rose 2.0% in December, bringing the Index to +7.7% in 2023.  The Index continues to generate positive alpha of 3.3% relative to the S&P 500 (S&P) over the last 12 months.
  • Technology/Media/Telecom Sector Index (+17.8%) specifically and Equity Sector Index (+14.1%) more broadly led the way in 2023 after finishing 2022 at the bottom.
  • Conversely, Managed Futures Index (-2.7%) and Global Macro Index (+1.8%) rounded out the worst performers in 2023 after topping the charts in 2022.
  • 76% of funds were positive in December while 80% were positive for the year. The 20% of funds that declined averaged a loss of 8% while the 80% of the positive performers averaged a return of 13%.
  • For the 12-month rolling period through December, Credit continued to produce the highest Alpha (+6.2%)

2024 Hedge Fund Performance

Strategy Highlights

  • December continued the trend of positive returns for most hedge fund strategies, with equity specialists particularly buoyed by the end of year rally experienced by global equity markets. Accordingly, the Equity Sector Index posted 5% on the month and 14.2% for 2023. Event Driven was up 3.8% and finished the year up 8.2%. Equity Diversified also performed well, gaining 2.9% in December and +11.6% for the year.
  • Managed Futures was one of the few decliners, losing 1.1% in December and 5.0% in Q4 as treasuries rallied. In March, and most recently in November, PivotalPath discussed Managed Futures’ historic short exposure to Treasury futures and the potential impact on performance. For a  deeper dive click here.

What we’re seeing:

What we’re seeing: What goes down, must come up?

During the five-year period between 2016-2020, our Equity Quant and Global Macro: Risk Premia Indices annualized returns of 1.2% and 0.5% respectively, falling out of favor with many investors.

Equity Quant (+6.6%) and Risk Premia (+7.2%) generated solid returns in 2023 for the 3rd consecutive year, putting them near the top of the return leaderboard since 2021. This performance, with very little correlation to equity markets, is highly coveted by investors.

Hedge Fund Performance

Pivotal Context

The Backdrop: Inflation and Interest Rate Projections

Hedge fund performance picked up where it left off in November as economic data continued to support declining interest rates and a soft US economic landing in 2024.

Global stocks hit their highest levels since October 2022, with US indices – supported by the robust performance from the ‘Magnificent 7’– leading the way. Strong Q4 returns drove full year 2023 performance for the Nasdaq (+43%), the S&P 500 (+26%) the Russell 2000 (+15%). However, 70% of the stocks in the S&P 500 underperformed the index itself, illustrating not only the thinness of the market’s appreciation, but the inherent difficulty in active stock selection in 2023.

The US 10-year Treasury yield declined another 55 bps to 3.88% (as yields move inversely to prices) while the US 2-Year yield declined 43bps to 4.25%. Both are now at multi-month lows.

The best performing equity sectors in 2023 were Technology (XLK) +55%, Communications (XLC) 51% and Consumer Discretionary (XLY) +38%. Laggards include Utilities (XLU) -10%, Energy -4% and Consumer Staples (XLP) -3%.

Forward looking volatility, as measured by the CBOE Volatility Index (VIX), declined again in December to levels not seen since pre-COVID, ending the month at 12.45, though realized volatility remained high.

As we pointed out in an August note on the Volatility Effect on Hedge funds, the VIX below 20 has boded well for most equity and credit strategies going back to 2000.

Read the full report here.

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The post above is drafted by the collaboration of the Hedge Fund Alpha Team.