Pivotal Point of View
2021 First Half Highlights
2021 Leaders If the year ended here, Credit would produce its best year since 2016 led by Distressed +15% and Credit Multi-Strat +9.4%. Equity Diversified continues to do well generating 9.3% led by U.S. Long Short +11.3% followed by Europe Long Short and Asia Long Short +10.5% and +7.6% respectively.
Turnaround Stories Equity Quant generated 6.4% through mid-year which would be its best full year calendar year performance since 2017. Risk Premia has also experienced a significant turnaround gaining 8.5% after losing 11.3% in 2020.
Equity Sector Financials and Energy led the way through June, up 14.6% and 11.9% respectively compared to little gains in Healthcare and TMT. This is on the heels of years of dominance by Healthcare and TMT emphasized by returns of 26% and 35% respectively in 2020. The change in leadership can be partially attributed to the shift from growth to value highlighted below.
Market Observations
Growth vs Cyclicals
PivotalPath’s U.S. Growth Sectors Basket outperformed our U.S. Cyclicals Basket in June. YTD However, Cyclicals lead Growth by ~11%. For context, Cyclicals has not outpaced Growth since 2016 and 2010 before that.
Meme Stocks
Hedge Funds in general do not appear to have significant exposure to meme stocks. PivotalPath systematically evaluated over 1,000 institutional quality funds across 20+ strategies against the PivotalPath Meme Stock Basket. While most hedge funds have little sensitivity to this risk factor, Equity Quant is one of the few with significantly negative correlation to this factor over the preceding 12 months.
Industry Risk Subsides
Using a rolling measure of volatility, The PivotalPath Composite Index peaked at 11% in December 2020. It has since fallen back to roughly half that value at ~5.5%, much closer to its historical average. The monthly PivotalPath Dispersion Indicator, after hitting an all time high in March of 2020 of 11.7%, (using data going back to 1998), fell back to its 10-year monthly average of ~3%. These proprietary risk measurements indicate a drop in industry risk taking beyond the level one should expect from the drop in general equity and bond market volatility.