PivotalPath has released their monthly report, the Pivotal Point Of View. This report is compiled monthly on behalf of over $450B in client hedge fund capital and tracks more than 3,000 institutionally-relevant hedge funds, spanning over $3T of assets.
So, how has 2025 been so far? Below are a few highlights.
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- In short, the economic storm of tariffs and wars (both trade and real) sought to constrict market confidence in February. The PivotalPath Composite Index was down 0.2%, a long way from its robust start to the year, when it ended January up 1.6%.
- PivotalPath’s equity sub-indices focusing on Europe and Asia outstripped their US peers. In February, the PivotalPath Equity Diversified: U.S. Long/Short Index was down 1.2% versus the PivotalPath Equity Diversified: Europe Long/Short Index at 0.4% and the PivotalPath Equity Diversified: Asia Long/Short Index at 2.1%.
- While equity specialists had a hard path to navigate, macro managers held onto their gains, with the Macro Index ending the month up 0.1%, with a YTD of 1.9%.
- With February hoisting a few red flags, volatility specialists also made the most of the opportunity, the PivotalPath Volatility Trading Index finished the month up 1.0%. The VIX (CBOE Volatility Index) increased 19.48% across the same period.
- Managers spoken to by PivotalPath agree that the US equity market is nervous about a prolonged trade war, particularly as many of its largest companies are exposed to high discounted earnings growth, a reliance on significant foreign profits and large ex-US pools of investment.
2025 Hedge Fund Performance
Strategy Highlights: PowerPoint Presentation
Equity hedge funds were rattled across a challenging month, while a number of uncorrelated strategies posted solid returns.
- Multi-Strat managers paid for some over-crowding and labored through the month. However, the space ultimately rode a volatile market well, even eking out a positive return in February, with the PivotalPath Multi-Strategy Index coming in at 0.3%, up 1.4% YTD.
- And while some fundamental equity players lost ground, Equity Quant, largely market neutral and with little factor exposure, continued its impressive run, with the PivotalPath Equity Quant Index finishing February up 0.9%, making for a YTD of 3.5%.
- Largely uncorrelated to whipsawing equity markets, credit continued to impress, with the PivotalPath Credit Index up 0.8% for February. With spreads showing signs of widening, 2025 could present a series of opportunities for classic long/short credit players, while distressed players who finished 2024 strong continue to make hay with the PivotalPath Credit: Distressed Index now up 2.6% YTD.
- With February hoisting a few red flags, volatility specialists also made the most of the opportunity, the PivotalPath Volatility Trading Index finished the month up 1.0%. The VIX (CBOE Volatility Index) increased 19.48% across the same period.
Pivotal Context
The Backdrop: February augurs a difficult March and Momentum starts to slide.
- Momentum, after a positive January, slipped backwards in February, falling by 0.78%. It remains up YTD at 2.72%, although funds are cautious around a factor that was in the driving seat across 2024, with some funds, in the words of one manager, “taking deliberate and significant exposure”.
- Managers remain concerned that a hiccup in the momentum trade could be a serious challenge in 2025.
- Managers remain concerned that a hiccup in the momentum trade could be a serious challenge in 2025.
- “It’s such a crowded trade that the unwind could be dangerous across a number of strategies”
- However, net exposure to momentum still remains high.
- Quality steadied in February at 0.02%, after falling 0.63% in January and 0.38% in December.
- Size remained in negative territory, delivering 5.12%, as small cap stocks struggled with ongoing uncertainty. Size is now down 5.97% YTD.
- February is often labelled as a perennially bad month for markets, particularly in a year after a US election. However, at the end of 2024, few predicted that the year’s most truncated month could pack in so many amber flashing lights around market confidence (US tech), macro prints (US jobs and waning consumer confidence) and political conditions (tariffs).
- Managers reacted to the uncertainty by becoming mildly bearish. This gloomier sentiment is backed up by data, the month saw significant net selling, particularly in US stocks, with a good deal of this via short sales.
- There will be dispersion and opportunities for alpha, but managers point out that at timeslike these even the best stock pickers can be stymied as markets cease to be rational.
- This is exemplified by the current struggles of US tech, which despite mostly decent fundamentals is struggling with downward pressure – the once Teflon Magnificent 7 has seen a significant drawdown since December, (falling 6.5% through February), creating an overtly concentrated headwind for US equities.
- While managers nervously eye equity markets, US Treasuries have had a pretty good early 2025, with a rally built on concerns about ongoing equity volatility and a belief that the Fed may cut rates deeper than initially thought at the dawn of the year.
Read the full report here by PivotalPath
