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Healthcare hedge funds decline 22.1% YTD but are well-placed to capitalize on current trends and grow returns

Tuesday, November 01, 2022
Opalesque Industry Update - The first nine months of 2022 have been exceptionally challenging for the global financial markets, with rising geopolitical tensions, inflation, interest rates, recession concerns and the emergence of new, more transmissible variants of Covid-19 among an evergrowing list of worries that investors must grapple with, causing a spike in market volatility that has seen the CBOE Volatility Index rise 83.6% this year.

Against this backdrop, the average healthcare hedge fund declined 22.1%, a disappointing return but still superior to the 24.8% fall of the S&P 500.

Nevertheless, healthcare hedge funds have performed exceptionally well over the long-term. With the Covid-19 pandemic driving increased global awareness of the importance of effective pandemic preparedness, aging demographics across most developed countries and healthcare's generally low correlation with global macro conditions, healthcare hedge funds are well-placed to capitalize on these trend to grow returns and fortify their investments.

The average healthcare hedge fund has declined 22.1% YTD. Despite the disappointing return, this is still superior to the 24.8% fall of the S&P 500.

Healthcare hedge funds have generated returns exceeding 10% during fourteen of the twenty-two years prior to 2022. However, they have declined 22.1% over the first 9 months of 2022, weighed down by the bearish market sentiment that has seen the S&P 500 and NASDAQ composite lose 24.8% and 32.4%, respectively.

Healthcare hedge funds (33.3%) have performed exceptionally well in 2020 as the onset of the Covid-19 pandemic incited a boom in the sector, outperforming the average hedge fund and the S&P 500 by 20.0% and 17.0%, respectively. This margin of outperformance was last witnessed in 2008 when the average healthcare hedge fund outperformed the S&P 500 by 22.4%. However, the positive trend of outperformance reversed in 2021 with healthcare hedge funds managing to return 2.3% versus the S&P 500's 26.9%.

Since the end of 1999, the Eurekahedge Healthcare Hedge Fund Index has generated an annualized return of 10.9%, outperforming the Eurekahedge Technology Hedge Fund Index (9.1%), Eurekahedge Hedge Fund Index (8.2%), S&P 500 (4.0%) and NASDAQ Composite (4.3%).

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