Capital markets remained volatile during fourth quarter 2022. Risk assets appreciated significantly during October and November before giving back some of the gains in December. Three consecutive quarters of positive returns and outperforming most other strategies came to an end for macro hedge funds during the quarter.
Volatility peaked in June as markets struggled to find equilibrium between inflationary pressures and the prospects of a recession. There was no shortage of uncertainty. Given the environment, hedge funds performed relatively well versus broad equity and credit market indexes, despite most strategies experiencing absolute losses.
Global capital markets were volatile during third quarter 2021. In September, equity markets gave back most of the gains made earlier in the quarter. Markets are reacting to concerning economic and inflation data, geopolitical risks, and potential central bank tightening. Core hedge fund strategies were mixed but relatively flat during the third quarter.
The previous 12 months have been very positive for fundamental investors, as these managers have been able to identify the winners and losers as a result of lockdowns. We continue to believe hedge fund managers will be able to take advantage of the volatility presented by a choppy recovery, policy change by a newly elected US government, and permanent disruption within sectors as a result of COVID-19.
While fourth quarter 2020 brought an end to one of the most tumultuous years in recent history, capital markets performed well and hedge funds generated strong returns.
Second quarter 2019 saw most major global equity markets continue their recovery from the sharp fourth quarter 2018 market correction, with the S&P 500 Index reaching record highs in late June.
In this quarter’s edition, our focus continues to be on fundamental equity long/short managers, but now from an internal perspective. The overall strategy performed well during first quarter 2019, capturing more than 60% of the strong gains generated by the MSCI All Country World Index. While the extreme market action of the last two quarters occurs infrequently, this type of trading environment can provide useful insight into portfolio manager behavior and psychology. Analyzing portfolio management decisions, as opposed to stock selection or external factors, though interconnected, can help improve future manager selection.
Major hedge fund strategies diverged in performance in second quarter 2017. In this edition, we examine the progress in the long/short equity space and challenges in the macro landscape.
With investor sentiment toward long/short hedge funds historically low, we review the key factors for re-underwriting managers in a portfolio and discuss the outlook for the strategy.
The fourth quarter update examines the impact of the US presidential election and reviews hedge fund performance for the calendar year, which saw a notable positive shift in event-driven strategies.