Editor’s Letter – Issue 147

March 2020

Hamlin Lovell
Originally published in the February | March 2020 issue

In March 2020 the average hedge fund has seen an intra-month drawdown of 8.6% to March 20th, according to HFRX data. This is pretty close to the full calendar month loss of 8.7% seen in August 1998, based on HFRI data, which goes back to 1990. This should be seen in the context of global equity markets losing circa 35% over five weeks. Thus, the industry’s beta to equities has been about 0.25, or closer to 0.2 using daily data, according to Ken Heinz of HFR. 

Hedge funds have generally offered some degree of diversification by losing less than long only equities, and a handful of hedge fund managers have generated absolute profits. Volatility managers with a long volatility bias and those offering tail risk strategies have sometimes posted extraordinary returns. The CTA industry is starting to show some degree of “crisis alpha”, with strategies run by managers including Campbell & Company, Eckhardt and Systematica putting up particularly strong numbers. Some discretionary commodity traders such as Pierre Andurand, Doug King of The Merchant Commodity Fund, and Stephen Smethurst of Zafiro Capital, have also been well positioned for the collapse in oil prices. In broader discretionary macro strategies, Brevan Howard has also continued its strong performance. In equity long/short, managers who have been bearishly biased for some time, including Crispin Odey and John Horseman, have profited, as have those, including Sandler Asset Management, on the Lyxor platform, who have pivoted to a more tactical short stance.

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