The Pivotal Point of View Commentary
October was almost a mirror image of September, which was also the mirror image of August.
The one constant throughout each month? Hedge funds continue to deliver.
In 2021 alone, we have experienced at least three major market moving events, from the Archegos unwind, to the Reddit Short Squeeze to extreme moves in the treasury yield curve. Each time, there have been fears of market contagion and potential systemic shocks to hedge funds.
Hedge fund strategies have been able to generate returns in many unique ways, which is exactly the diversification that investors covet:
The PivotalPath Composite Index has returned ~8.9% YTD and 18.3% over the last 1 year rolling period. All with a beta to the S&P 500 of .27 while generating alpha of 7%.
Out of PivotalPath’s 40 indices and sub-indices, only two are negative YTD, both within the Equity Sector Index, where Healthcare and Consumer/Retail are down less than 2%.
Within the Equity Sector Index, Financials, Energy/Utilities/Industrials have generated returns of 19.6%, and 15.2% respectively YTD, taking the mantle from TMT and Healthcare, which are +5.2% and -2.0% respectively.
Notably, PivotalPath’s Energy/Utilities/Industrials Index generated positive returns in each of the last three months, +1.4 in August, +1.1% in September and +3.5% in October while crude was -7.4% in August, and +9.5% in September and +11.4% in October.
Why the change in Equity Sector leadership?
When inflation leads to higher interest rates, value tends to outperform growth. This environment typically bodes well for financials and energy and creates headwinds for growth sectors such as technology and healthcare. True to form:
Value as measured by PivotalalPath’s Cyclical Sectors Basket was +8% in October and +31.1% YTD.
Interestingly, the PivotalPath Growth Sector basket was up 8.5% in October and is +22.6% YTD
Another way to look at this is Value is outperforming Growth by over 8% YTD. This hasn’t happened in a calendar year since 2016 and only twice since 2010.