Observations:
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March was a volatile month due to the coronavirus pandemic and oil price war. All things considered, hedge funds held up as they did in February. 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. Given the dislocation, a number of closed managers recently re-opened to new capital. Also, we see high-quality launches still going forward, including those with April 1 launch dates.
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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. Unsurprisingly, energy, distressed credit and mortgage-backed credit funds were among the worst-performing funds by sub-sector. 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.
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Factor performance was mixed in March. We are currently working on a piece that discusses outperformance of the quality factor. This factor comprises stocks of companies with stable earnings, stronger balance sheets and higher margins.
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Like everyone, hedge fund managers are trying to model the peak in COVID-19 in the US, and across the globe, to stay ahead of the news cycle and understand implications for the industries in which they invest. Managers and institutional investors can use our free COVID-19 data visualization tool here to do just that.
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Given the significant volatility and unprecedented dispersion among manager returns in March, please note that revisions to the PivotalIndices may be larger than usual this month, particularly in credit strategies.
For access to performance data, our proprietary alpha rankings and additional commentary, please download the full report.