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2019 Hedge Fund Strategies Review

The New Year 2020 is now well under way and now we have returns for all major Hedge Fund strategies for the entirety of 2019. This week, we’re taking a look at how the different styles fared against each other. To reduce clutter, we will be focusing on the 7 largest strategies - based on total assets - from Backstop BarlcayHedge.

The first observation is that all of the major strategies have a positive return for 2019, with the aggregated total for combined Hedge Fund Index (the bold yellow line) returning almost +11% for the year.

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The statistics are also quite impressive, as relatively low volatility levels lead to some decent Sharpe and Sortino ratios. The insanely high Sortino of almost 20 for the Equity Long Short strategy is caused by very low volatility of negative returns - there were only 3 months of negative returns and they were all very close to -0.5%, producing a downside deviation used in Sortino’s denominator of only 0.1% - the smallest in the group.

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Managed futures strategies, which were doing great until September, gave up some of their gains in the last few months of the year, but still produced notable returns of +5.2%, their best return IN 5 YEARS, while also remaining true to their diversifying nature, not only against the traditional assets but also ALL the other hedge fund strategies in our review, as evidenced by the correlation table below.

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Looking at the monthly heat map we can see that a couple of months have been particularly difficult for the industry, namely May and August (isn’t there something about August and Hedge Funds?), with CTAs again showing their negative correlation to the pack in August.

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Those difficulties aside, it was a refreshingly good year after some persistent prior year’s disappointment. And, on a risk-adjusted basis, the picture looks even brighter, with hedge funds chasing equities, raising our expectations for 2020 (volatility is normalized to 15% annualized in the below chart): 

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It’s a new year and there will, no doubt, be many developments, geopolitically and economically, which affect hedge fund returns. We’ll be watching with interest, as always!

Dmitri Alexeev is Founder and CEO of AlphaBot, a collaborative platform for alternative investment research.


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