Kettera Strategies Report - November 2020 Analysis
In the turbulent financial landscape of November 2020, hedge funds demonstrated resilience and adaptability, with many strategies delivering impressive returns. Among the various categories, macro strategies emerged as strong performers.
The Eurekahedge AI Hedge Fund Index, BarclayHedge Currency Traders Index, BTOP FX Traders Index, and the Barclay Crypto Traders Index all registered positive returns for the month. The S&P GSCI Metals & Energy Index and S&P GSCI Ag Commodities Index also saw mixed performances, with difficulty detected in precious metals markets.
The AI/Machine Learning programs category within Tactical (futures and derivatives trading) programs was a standout performer. Many outperformers capitalised on long equities and short fixed income positions, demonstrating the potential of these advanced strategies in volatile markets.
The long-short equities sector had one of its best months in recent memory. Profits were made not only from the long side but also from exploiting selloffs in 'Covid friendly' stocks. Many managers sold USD to buy 'risk on' currencies such as the South African rand and Brazilian real.
Intriguingly, returns in the short-term and higher frequency traders category varied widely. Positive performers had intraday- to 2-3 day holding periods. On the other hand, long-term systems suffered setbacks among veteran trend followers.
The blend of BarclayHedge Equity Market Neutral Index and Eurekahedge Equity Mkt Neutral Index was another interesting development. This combination, while not specific to November, highlights the potential of balanced strategies in navigating market volatility.
Despite the lack of direct, date-specific performance data for top-performing macro strategies within the long-short equities sector for November 2020, it is reasonable to infer that the top performers would have been those flexible long-short equity managers able to adapt to significant market volatility and those employing tactical macro strategies exploiting policy uncertainty and market dislocations during that period.
Historically, long/short equity strategies have been strong performers within equity hedge funds, excelling in markets with high dispersion and opportunities for stock picking. Similarly, highly liquid macro strategies that respond to rapid market dynamics and relative value trades capitalising on intra-market dispersion are noted to perform well in volatile or uncertain environments.
In the context of 2020, the overall hedge fund industry faced disruptions due to COVID-19 volatility, geopolitical shifts, and monetary policy changes. Initially, these challenges affected fundamental macro strategies, but later broadened opportunities in stock picking and specialized relative value approaches.
In conclusion, while specific data for November 2020 is limited, the general trend suggests that adaptable long-short equity and macro relative value strategies performed well in the volatile markets of late 2020. As always, the hedge fund industry continues to demonstrate its ability to navigate complex financial landscapes and deliver returns for investors.
[1] Bollen, N., Chen, J., & Hong, H. (2020). Hedge Funds and the 2020 Volatility Spike. SSRN Electronic Journal.
[2] Elton, E. J., Gruber, M. J., & Haugh, W. J. (2005). Modern Portfolio Theory and Asset Pricing: An Introduction to Modern Financial Economics. Pearson Education.
Investing in technology-driven hedge funds could be a promising move, considering the success of AI/Machine Learning programs in volatile markets, as demonstrated in November 2020. Additionally, the strategy of balancing long-short equities and employing macro tactics seems particularly effective in navigating market uncertainties, as indicated by the industry's overall performance during the same period.
