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Hedge Fund Strategy Performance Through March

As has been noted many times, 2020 has, so far, been full of records and unprecedented events - in people’s daily lives and financial markets - and the year is only three and a half months old. 

In the world of hedge funds, it has shown what different strategies can do when so many things go wrong at the same time, and I find it quite interesting that there are very few surprises; that is, with so much uncertainty and volatility making forecasting difficult, the overall industry results are kind of in line with expectations built from knowing the industry for many years.

We are monitoring the 7 largest strategies by AUM (there are a total of 31 Barclay Hedge indices), and the first “non-surprise” is the stellar result of CTA index. It is the only strategy out of the major 7 that produced positive return both for the month of March AND for 2020 YTD, with the other strategies falling behind by at least 3%.

2020 YTD Heatmap

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March 2020 Heatmap

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Many other strategies have paid a steep price for their exposure to long equities, a trade that has been persistently growing over the last few years due to the seemingly relentless equity bull market. On one hand, it is understandable; very few investors have the stomach to give up the equity returns out of “Fear of Missing Out”. On the other hand, however, the industry DieHards - who were sticking to their diversification guns - finally got their “I told you so” moment. Too bad not that many investors listened, of course, but some did, and they are sure happy now; or, at least less miserable.

It will be interesting to see how the investment field pans out going forward (with apologies for the word “interesting” being kind of insensitive - I do not mean to be an impartial observer to the very chaos that is developing right now where literally billions of people have their livelihoods, and for many, their very lives, destroyed by the pandemic - it affects everybody, including yours truly). The dynamics of the equity markets, the actions of the Fed and the U.S. Treasury (does anyone know the difference between those two anymore, btw?), and the sheer magnitude of the amount of money that we are seeing manifested into existence out of the void can make anyone lose their head. One thing that seems to be standing out in particular is the ever increasing lack of any moral compass in the actions of Central Banks everywhere.

Printing more money that ends up in the banks that then goes into stocks when billions of people are losing their jobs and income and very lives just does not make the impression of “saving” anybody and looks more and more like a self serving, self preservation act, and I do mean to stress the “self” word. Take a look at this picture, for example - it is just plain wrong on so many levels that I cannot even begin to describe.

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Things like that will have a profound effect not only on hedge fund strategies performance, but on the very social fabric around us. I don’t doubt that we will see exactly how, very soon.

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

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