This week’s stock market plunge on coronavirus worries has given hedge fund managers a rare opportunity to brag that they are performing better than traditional stock market funds during a time of market stress.
Analyst reports on Friday showed global long-short equity hedge funds lost less money than traditional stock market portfolios, a change in fortune compared with the past several years. Investors in hedge funds pointed to the value of the strategies as markets plummeted on fears of the coronavirus hurting more people, supply chains and economies.
“Overall we’ve been pleased with how funds have performed so far,” said Darren Wolf, who leads alternative strategies for Aberdeen Standard Investments.
The firm’s stable of around 150 managers was performing well against the market volatility, he said, while cautioning that the situation was “very fluid.”
A report from Goldman Sachs Group Inc on Friday showed long-short managers losing 4.2%, on average, over the five prior days, compared with a global stock benchmark plunge of around 10%. Morgan Stanley data showed a 4.7% week-to-date drop for a similar suite of Americas equity hedge funds, versus 8.8% for the MSCI World Index. The report added that a broader group of hedge funds fell just 2.9%.
It was a welcome development for hedge funds, which over the past decade have suffered reputational damage, prominent closures and asset outflows over poor performance and high fees. Enviable returns of low-cost index funds and brokerages moving to zero-commission structures have only underlined the pain.
Last year, stock-focused hedge funds gained 13.7%, on average, while the S&P 500 stock index climbed 29%, according to Hedge Fund Research. The gap has been fairly consistent since the financial crisis, with hedge funds have underperformed soaring equity markets.
In response, hedge-fund managers have said their funds are not intended to track the market, but to be a hedge — literally — against and diversified from market risks. The coronavirus is a good example, so far, of how that can play out, some industry sources said.
For instance, hedge fund portfolios at a prominent European pension fund are up modestly in February with strong returns at commodity trading advisors, global macro funds and quant funds whose investments come from computer models, one source said.