Thu, Aug 11, 2022
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

L/S equity performance decelerated in June but was robust enough for a +10% H1

Thursday, July 29, 2021
Opalesque Industry Update - L/S equity hedge funds lost momentum in June as performance gains decelerated and flows took a dramatic swing into negative territory. HFM's L/SEquity Composite returned 0.8% last month, above the 0.4% June gain for HFM's Global Composite Index, but below each of the L/S equity index's five monthly returns in 2021.

YTD, the strategy is up 11.6% versus 9.1% for the wider industry. The strategy's declaration is evident among the sector's top performers. The top-performing Billion Dollar Club (BDC) L/S equity fund over 12 months has returned over 200% through June largely from gains made during Q1's GameStop "reddit revolution".

And early data for June flows suggests investors believe conditions have shifted out of L/S equity's favour. Afterthe strategy saw inflows of $22bn in 2020, compared to a $21bn outflow for all hedge funds, there has been a course correction in 2021 with investors shifting towards non-equity strategies as the efficacy and rollout of vaccines became more established across developed economies.

Even so, flows into L/S equity funds through May had been relatively robust, with allocators adding $27bn. But in June, much of that progress was lost, with HFM data suggesting L/S equity funds saw net outflows of $17bn as part of a wider industry net outflow of $24bn.

In May, an HFM survey of allocators found that 31% planned to increase their exposure to L/S equity, compared to 27% six months ago. But anecdotal evidence suggests sentiment may have since shifted, with investors concerned about the threat of the Delta variant to the proposed reopening of economies and the prospect of further variants inflicting significant social and economic damage, and there is scepticism that L/S equity is a good strategy for capital protection. As a result, the prospect of renewed inflows will depend more on the trajectory of the pandemic than individual fund performance.

CTA performance turned negative in June but still produced a near-term record half

The average CTA finished with an H1 performance of 7.0% despite a -0.7% return in June; a result that had it trailing the wider HFM Global Composite YTD through June (9.1%) but comfortably ahead of the HFM Managed Futures Index in H1 2020 (1.5%). Recent performance has given investors encouragement, with HFM data showing a robust inflow during H1 and HFM research suggesting managed futures investor searches will rise during H2.

Investor flows into managed futures were effectively flat in June when the wider industry experienced a net outflow of over $20bn. But YTD through June, investors have allocated over $11bn to managed futures funds, accounting for around a third of total net inflows to the hedge fund industry, demonstrating managed futures strategies' appeal to investors as inflation takes off. In 2020, CTAs experienced a net outflow of roughly $3bn, and a net outflow of $13bn in 2019.

The encouraging flow numbers for 2021 have come as the strategy's H1 performance lagged the HFM Global Composite (7.0% versus 9.1%) and the S&P 500 benchmark (14.4%). This suggests hedge fund investors see the strategy as having delivered robust gains relative tomarket conditions. Thus far in 2021, only L/S equity, event-driven and multi-strategy hedge funds have outperformed managed futures funds.

Indeed, notable recent CTA investor searches cited the strategy's ability to produce uncorrelated returns and perform well as we enter a new market phase during which investors take a more "risk-off" approach. In a recent investor survey conducted by HFM in association with the Alternative Investment Management Association, managed futures strategies saw the biggest rise for any hedge fund strategy in the proportion of investors saying they planned to increase their allocation to the strategy versus six months ago, reinforcing a picture of growing confidence and rising allocations.

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Other Voices: ESG exuberance is at all-time highs. But will investors buy?[more]

    As investors increase their focus on mission-based investing, they continue to grapple with ESG and what it means to them. By David Shalom, Director of Capital Introductions at Pershing Innovation. New investment solutions. That's how managers deliver value and attract new inve

  2. Alts managers sitting on over $2.5tn+ of dry powder[more]

    Laxman Pai, Opalesque Asia: In the current rising interest rate environment, investment activity in the private markets has continued to grow, revealed a study. "With alts managers sitting on over $2.5T+ of dry powder and continuing to enjoy premium valuations and interest rates on a prec

  3. Opalesque Exclusive: Hong Kong manager expects additional tailwind in Asian markets[more]

    B. G., Opalesque Geneva: The Asia equity markets have not been at their best so far this year, with the MSCI Asia index down almost 13% YTD, but many managers remain buoyant about the region, as in

  4. Opalesque Exclusive: Emerging markets persist despite headwinds[more]

    Bailey McCann, Opalesque New York: Emerging markets have been under significant pressure since the start of the year, but there are some nascent trends that suggest that things could be getting better. Emerging markets firm Gramercy Fund Management recently released its third quarter outlook and

  5. Opalesque Exclusive: Castle Hall's DiligenceExchange free Transparency Reports cover 100 managers with $10tn of assets[more]

    Matthias Knab, Opalesque for New Managers: Managers and investors can get free access to DiligenceExchange here: https://bit.ly/DXCInfo Castle Hall, the Du