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By Stan Altshuller, Novus

While there is little doubt that 2015 was a challenging year for many hedge funds, there were a few bright spots where managers were able to capture value and add alpha. In short, what worked in 2015 were stocks in the mega-cap space that were responsible for the majority of the growth in the US Equities market for the year. While they were not obscure names, hedge funds were successful in not only identifying these stocks but also allocating to them heavily. Given the poor market breadth we’ve seen, this was an important source of alpha for managers struggling to find value elsewhere in the markets. For this post we’ll use public ownership data and the value-weighted portfolio of hedge funds we call the Hedge Fund Universe (HFU).

Background

Let’s briefly review the opportunity set for a fundamentally driven or event driven hedge fund manager operating in the US equities space. The S&P 1500 index is off slightly YTD 2015 as of yesterday, with the winners contributing 8.36 percentage points (836bps) and detractors costing the index 849 bps. Out of the positive contribution, 230bps or 27% is attributable to just five companies and 36% to just ten. In other words, over one third of positive P&L of the 1500-company index came from ten stocks and 90% of the gains came from 10% of the stocks. Furthermore, 60% of stocks in the index had negative returns on the year, and the only reason the index is basically flat is that positive perform......................

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