Some active managers are not just outperforming the markets in the current unsettling, mainly down markets, but are also projecting positive returns through 2022.
Hedge funds are the most proactive kind of active management, which is why a large portion of this column will focus on their performance.
Only 7 funds out of the 1,412 U.S. actively managed stock funds monitored for the past 12 months through September managed to produce any gains, according to The Wall Street Journal's Winners' Circle poll. For traditional active equities investors, that is bad news.
Let's shift our focus from conventional active management to alternative active surveillance, which uses hedge funds. As has already been noted, nothing is arguably more active than hedge funds. Due to the wide range in performance between the top performers and the bottom performers, managers in hedge funds must meet two specific criteria: to be in the appropriate category of hedge fund strategy for the market environment and to be with the best managers.
According to PivotalPath, Managed Futures (+21%), Global Macro (+12.5%), and Multi-Strategy (+0.2%) are the top performers in the hedge fund sector this year. The larger well-performing hedge funds profited from their scale investments in infrastructure and modeling, as opposed to the long-only traditional equity outlined above, where the outperformers were distinguished by narrow specialty strategies with little to no diversification.
More on managed futures: In the current volatile market environment, major funds often need to allocate more capital to medium- and long-term trends following. Due to these limitations resulting from their vast capital base, the larger funds have performed well in 2022, whilst the smaller funds, which frequently benefit from nimbleness, have performed less well. One example of a significant outperforming managed futures fund is Blue Trend, which has grown by 38 percent through September and has a market cap of several billion dollars.
One instance of a multi-strategy is the $60 billion DE Following yearly net returns above 18 percent in both 2021 and 2020, Shaw's flagship Composite Fund earned a net return of more than 20 percent through August.
Dispersion is at its most significant level since the 2008–2009 Financial Crisis, according to Jon Caplis, CEO and Founder of PivotalPath, a prominent hedge fund consulting and Analytics Company that monitors over 2,500 hedge funds. According to Caplis, choosing a strategy is always necessary, but with the current high levels of dispersion, manager selection is more crucial than ever.
Through September of this year, the dispersion between the 75th percentile and the 25th percentile for their composite index, which includes all of their reported hedge funds, was a staggering 23 percent, compared to a ten-year annual average of 12.3 percent. Moreover, 42% of the funds included in the indices reporting through September have positive performance. Investors in hedge funds can rejoice.
Another example is the Equity LS index from PivotalPath, where the dispersion through September of this year is a staggering 18.3% percent, compared to a ten-year annual average of 11.7 percent. And a whopping 25% of the hedge funds included in the index reporting through September are positive, outperforming the less than 1% positive funds recorded by typical long-only US stock funds in this column's earlier example.
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