March was a tough month for the global markets.
The COVID-10 virus became a household struggle, trading floors emptied as did the streets around the world, equity markets were pummeled with selling and the credit markets froze up. Trading and investing went electronic as volumes and volatility skyrocketed and everyone endured some degree of pain, including hedge funds.
Looking back, March was the worst month for the S&P (-12.4%) in over a decade, and the worst 1st quarter (-19.6%) on record. Against this backdrop, hedge funds held up relatively well, with the PivotalPath Composite Index was down -5.1% in March and down -6.1% in the 1st quarter. The firm also measures dispersion of net returns across all funds in the Composite, and this dispersion hit a record 11.2% in March.
“Most hedge funds fared better than broad market indices. PivotalPath’s research team has been busy conducting calls with managers to hear their views on upcoming opportunities,” the report began. “Given the dislocation, a number of closed managers recently reopened to new capital. Also, we see high-quality launches still going forward, including those with April 1 launch dates.”
For example, discretionary macro funds that did well had long dollar, long volatility, short equities and/or short oil bets in their portfolios. Also, the report noted energy, distressed credit and mortgage-backed credit funds were among the worst-performing funds by sub-sectors.
“Overall, hedge funds that trade volatility benefited from the sharp spike in volatility, especially those with a long vol bias. Specifically, multi-PM firms held up well because of diversification and tight risk management while discretionary macro funds that did well generally had long dollar, long volatility, short equities and/or short oil bets in their portfolios,” the report said. “Unsurprisingly, energy, distressed credit and mortgage-backed credit funds were among the worst-performing funds by sub-sectors.”
Energy-focused funds were hurt by the fall in oil prices, while parts of the credit market saw their largest dislocation since the global financial crisis of 2008.
Looking ahead, the firm said it expected to see high-quality fund launches still going forward.
PivotalPath analyzes over 200,000 data points across more than 2,000 hedge funds and 40+ different strategies to provide a detailed analysis on the state of hedge fund performance.
