Pivotal Point of View – January 2022

The Pivotal Point of View Commentary

Hedge funds put up another strong year, with the PivotalPath Composite Index returning 7.9%.

  • While 2021 was another positive year for hedge fund performance in general, there was almost a complete reversal among the strategies that led vs. those that lagged, other than a few exceptions. And the story is a bit more nuanced than extrapolating on the headline performance from the S&P 500 or the Nasdaq.

    Equity Quant bounces back in a major way:

  • The Index generated 16.3% as one of the top performing strategies in 2021. That compares to a loss of 4.6% in 2020, and an annualized return of 1.2% from 2016-2020.

  • Its Sharpe Ratio of 2.67 was near the top and slightly above the S&P 500’s Sharpe of 2.6 for the year. And its alpha of 7.1% relative to the S&P 500 made up almost half of its returns in 2021.

    Equity Sector Indices trade places:

  • The rotation into value from growth on the heels of stubborn inflation is a good place to start to understand why.

  • After posting some of the strongest performance in 2020, Healthcare and TMT led the way lower in 2021, generating losses of 6.2% and 0.8%, their first calendar year losses since 2008.

  • Financials generated 19.5% to lead sector strategies after a lackluster performance in 2020.

  • Energy/Utilities and Industrials was one of the only indices that generated strong and consistent returns in 2021 (+15.5% compared to 15.2% in 2020).

    Multi-Strategy continues to shine:

  • The PivotalPath Multi-Strategy Index generated 9.7% in 2021, all of it in the form of alpha relative to the S&P 500.

  • The strategy protected its downside yet again in a year which included the Archegos meltdown and Meme Stock mania, higher than expected and intransigent inflation, significant moves in interest rates and factor reversals.

    PivotalPath Credit Index generated 10.5% in 2021, its best performance since 2013:

  • Strong performance was led by Distressed (+15.7%).

  • Convertible Bond Arb returned 9.2% after leading Credit in 2020 with a return of 22.7%

    A look ahead:

    Hedge funds, along with their reduced exposure to equity markets, remain poised to capitalize in another volatile year.


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