Long/Short Equity Funds Came Roaring Back In January

Most hedge fund managers are starting to get their feet back under them, according to asset returns and flow data. In fact, January was so good for equity long/ short funds that they made back all the performance-based losses they racked up in all of 2018, according to data from Eurekahedge.

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Hedge funds bounced back in January

The Eurekahedge Hedge Fund Index was up 2.32% last month, driven by the enthusiastic return to risk-on sentiment. However, hedge funds underperformed global stocks as the MSCI AC World Index gained 7.36% in January.

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Preliminary January data indicates $22.1 billion in performance-based gains and $5.3 billion in net outflows. According to Eurekahedge, 73.8% of hedge fund managers were in the green in January due to strong positioning which benefitted from the "suppressed market volatility." In comparison, only 35.5% of hedge fund managers were able to avoid losing money in December.

As of the end of January, the global hedge fund industry had $2.3 trillion in assets under management, which marks an increase of 0.7% for the month. That's a significant shift from last year when the industry shed 6.3% of its assets throughout the entire year, which was the worst full-year decline since 2008.

Long Short Equity Hedge Funds

In December, hedge fund managers recorded $13.4 billion in performance-based losses and a staggering $54 billion in investor redemptions. In all of 2018, hedge funds racked up $61 billion in performance-driven losses and a massive $93.4 billion in investor redemptions. The Eurekahedge Hedge Fund Index was down 4.08% for all of 2018, but that decline was still better than the global equity market, which tumbled 10.18% for the year.

Long/ short equity funds are back… again

It looked like long/ short equity funds were finally getting their groove back in 2018, but then the fourth quarter hit. January brought a major rally for equity-focused fund managers, who must now be hoping that 2019 won't bring a jarring reversal of their fortunes again.

Long/ short equity funds recorded $23.1 billion in performance-driven losses in all of 2018, which was an exact match for the amount of performance-based gains they recorded last month alone. If equity funds can keep even a fraction of that pace up for the rest of the year, then this year will be much brighter than last. Long/ short equity funds were up 3.77% for January—the second-biggest gain of all the hedge fund strategies after event-driven funds, which were up 4.35% for the month.

However, despite January's strong performance-based gains, investors remained wary of long/ short equity funds, Eurekahedge added. Investors redeemed $1.8 billion from equity funds during the month—the largest net redemptions of all the major hedge fund strategies.

Long Short Equity Hedge Funds

Fixed income funds also had a strong January, racking up $1.4 billion in performance-based gains during the month as the high yield and government bond markets rebounded.

This article first appeared on ValueWalk Premium




About the Author

Michelle Jones
Michelle Jones was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Michelle has been with ValueWalk since 2012 and is now our editor-in-chief. Email her at Mjones@valuewalk.com.