It’s been an average year for hedge funds overall, but investors in managed futures and quant strategies have experienced anything but average.
The PivotalPath Composite Index was essentially flat in September, even as the S&P 500 lost .35 percent and U.S. Treasuries lost 2.24 percent.
But the story underneath that headline number is dramatically different. The PivotalPath Managed Futures Index delivered gains of 14.34 percent this year through September — the fourth best performance for that period in 29 years and the second best in 11 years. According to the hedge fund research firm, market returns, or beta, had little to do with these funds’ year-to-date performance. Of the 14.34 percent gain for managed futures, 14.2 percent was alpha. For the month, the Managed Futures Index returned 4.29 percent.
The Equity Quant Index gained 5.43 percent in the third quarter, the best in 24 years, and was up 3.68 percent in September. U.S. Long/Short Quant increased 6.55 percent last month.
Every month Institutional Investor publishes a subset of hedge fund indices from PivotalPath. Scroll to the end of the article to view 12 indices, including credit, equity diversified, equity market neutral, global macro, relative value, and others.
The losing strategies were also far from average, according to an early look at PivotalPath’s monthly returns. Take Equity Market Neutral, which lost 1.75 percent in the quarter, putting it in the bottom 3 percent of all quarters. Relative Value, which represents funds designed to truly hedge portfolios, lost .59 percent in the third quarter and down 2.2 percent last month. (For September results see the chart below.) The Relative Value Index excludes long-biased and directional strategies, leaving it only with strategies that are neutral to most factors, especially equities.
Also on the losing end was the Equity Sector Index, which was down 4.21 percent in the third quarter.
Credit, not surprisingly given the upheaval in credit and fixed income markets, had the worst performance (the index increased 2.92 percent) of all the major hedge fund indices year-to-date. In September, Treasuries lost 2.24 percent and high yield bonds lost 2.52 percent.
(Click here for the latest index performance data and access to PivotalPath's full suite of hedge fund indices.)
Notably, every PivotalPath index is ahead of the so-called beta implied return for the year, meaning a big percentage of gains can’t be explained by their long-term relationship to the S&P 500, or implied beta. Global Macro had an 8 percent return year-to-date, of which 7.3 percent was alpha — not connected to the S&P; of Quant’s 7.7 percent return, 6.2 percent was alpha.
Funds were flat last month but still beat a 60/40 portfolio by 1.8 percent. Still, PivotalPath says allocators have indicated they want more control of their hedge fund portfolios, including more transparency into the terms of their multi-strategy funds and demanding truly differentiated returns.
