Hedge funds lag stocks and bonds again

Hedge funds are on course for their best year since 2013 but will still come in with weaker returns than both equities and bonds, figures from an industry research group show.

The industry returned 8.6 per cent in the year to November 30, according to HFR.

Hedge funds that bet on stocks rising or falling were up 11.4 per cent, one of the biggest increases of any hedge fund strategy, but investors would have fared far better in the US S&P 500, which was up 27.6 per cent over the same period.

Even the US bond market, measured by a Bloomberg Barclays index, returned 10.4 per cent in the first 11 months of the year.

The hedge fund industry also posted weaker returns than stocks and bonds in 2018, according to HFR.

While the latest figures, released late on Friday, show the industry slightly ahead of its annual performance in 2017 and on track for its best result since the 9.1 per cent return in 2013, it seems unlikely to resolve investors’ discontent.

Redemptions have totalled $129.6bn over the past four years, marking the worst wave of investor outflows since the height of the financial crisis a decade ago.

Closures are also set to outpace new launches for the fifth consecutive year, led with veteran money manager Louis Bacon’s Moore Capital and Stone Milliner among those shuttering funds. The number of hedge funds has been shrinking steadily since it peaked in 2014.

In closing his funds to outside investors, Mr Bacon cited “disappointing results” in recent years and “intense competition for trading talent coupled with client pressure on fees”.

The strongest performers so far this year have been equity hedge funds that specialise in technology and healthcare. Shareholder activist hedge funds were also showing double-digit returns at the end of November, up 13 per cent, led by a resurgent Bill Ackman. Pershing Square Holdings, his publicly traded fund, is up more than 50 per cent, set for his first positive result in five years.

The only hedge funds tracked by HFR that were not up for the year were Multi-Strategy funds, whose index dropped 1.5 per cent. Distressed and restructuring funds were up 2.5 per cent, while macro strategies increased 5.8 per cent.

Kenneth Heinz, president of HFR, said that hedge fund managers’ were “ positioning for interest rate volatility and other potential geopolitical and macroeconomic catalysts for volatility, including Brexit scenarios, ongoing trade negotiations, impeachment proceeding, and the US election”.

He said: “Tactical exposure to opportunities created by these catalysts and trends is likely to define performance in early 2020.”