CTAs and quant macro strategies performed the best among hedge fund strategies in April but are still down year to date, while long short strategies saw crowded shorts underperform crowded long stock strategies, according to the UBS Hedge Fund Monthly Update for April.
Crowded shorts and longs
Some of the most popular crowded shorts in the tech sector were International Business Machines Corp. (NYSE:IBM), up 2.1% on the month, and Intel Corporation (NASDAQ:INTC), which performed positively by 3.4% on the month. Some of the profitable crowded shorts included LinkedIn Corp (NYSE:LNKD), down -17%, salesforce.com, inc. (NYSE:CRM), down -9.5%. The average crowded short play delivered -6.4% negative performance. Crowded longs included Facebook Inc (NASDAQ:FB), down -0.8%, Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL), down -4.1%, eBay Inc (NASDAQ:EBAY), -6.2% and Yahoo! Inc. (NASDAQ:YHOO), up 0.1% on the month. In consumer discretionary Tesla Motors Inc (NASDAQ:TSLA) was a crowded short, -0.3% along with J.C. Penney Company, Inc. (NYSE:JCP), -1.2%. Some crowded long names were Amazon.com, Inc. (NASDAQ:AMZN), which got hit -9.6% on the month, Time Warner Cable Inc (NYSE:TWC), up 3.1%.
Fall in US interest rates benefits CTAs
The UBS report noted that as general interest rates fell month over month this generated gains for CTAs but was “frustrating” for global macro funds. “There has been some mixed US economic data, but overall it has been relatively strong and the Fed continues to taper its asset purchases. Short US fixed income is one of the biggest consensus trades amongst macro hedge funds as they bet on higher US interest rates – but this trade failed to work (again) in April, causing losses for many funds. UBS client core positioning is in the belly of curve (3-7 yrs), and our rates desk estimates 60-70% of shorts are in this range,” the report noted.
Top value fund managers are ready for the small cap bear market to be done
During the bull market, small caps haven't been performing well, but some believe that could be about to change. Breach Inlet Founder and Portfolio Manager Chris Colvin and Gradient Investments President Michael Binger both expect small caps to take off. Q1 2020 hedge fund letters, conferences and more However, not everyone is convinced. BTIG strategist Read More
Long US dollar popular trade that isn’t working, M&A Strong
The report noted that “overall macro hedge funds remain USD bulls, particularly against the EUR, JPY and AUD,” but these trades were not profitable in April nor where they profitable year to date.
The report also noted that global merger and acquisition volume is the highest it has been since the 2008 financial crisis. “In April, global M&A volume surged +57% month over month, with $429B of announced M&A deals vs. $273B the previous month. Three of the five largest deals in April were Health Care, led by Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s $44B proposed acquisition of Allergan, Inc. (NYSE:AGN). Global deal count of 2,389 in April was -7% lower than March’s 2,559 deals.”
Most in demand hedge fund strategies still equity based
Equity hedge fund strategies remained the most in demand strategies – by far – while event driven strategies have replaced macro strategies in the second spot, followed by credit strategies, followed by the lagging CTA category. Overall net inflows into hedge funds totaled $26.3 billion, taking the hedge fund industry to over $2.7 trillion in assets under management.