Omicron-fueled volatility gives hedge funds worst monthly return since March 2020

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, United States, December 2, 2021. REUTERS / Brendan McDermid

TORONTO, Dec. 3 (Reuters) – Market swings fueled by Omicron appear to have made November the worst month for global hedge fund performance since the virus first shut down economies at the start of the COVID pandemic- 19.

Hedge funds fell around 1.6% to 2% in November, according to first data from industry research firm PivotalPath, their worst monthly performance since March 2020.

The potential losses are a setback in what has been a stable year for performance so far. The average hedge fund is up 11.4% in the first 10 months of 2021, according to data from HedgeFund Research (HFR). This compares to 11.8% last year and 10.5% in 2019.

The losses are “pretty widespread,” said Robert Sears, chief investment officer of London-based Capital Generation Partners, which invests in hedge funds. is going to be down. “

The S&P 500 (.SPX) fell 3.9% from its November all-time high as Omicron worries hit stocks in the final days of the month and recorded a loss of nearly 1% for the set of the month. Some sectors of the market were hit harder, however, with S&P’s energy sector (.SPNY) losing 6.2% last month and financials (.SPSY) losing 5.9%.

In November, volatility also increased across all asset classes, as uncertainty surrounding the Federal Reserve’s monetary policy led to swings in bond and currency markets, as well as equities. Read more

The market swings took some equity-focused funds off guard, which were hit by losses in bearish bets against stocks that rebounded unexpectedly.

Jean Baptiste Berthon, senior strategist at Paris-based Lyxor Asset Management, which invests in hedge funds, said European and US long-short strategies lost around 1.5% to 2% between November 25 and November 1. December.

Shares of Moderna, for example, which Sears said some hedge funds bet against, jumped 30% between Nov. 18 and Nov. 30. Prior to Nov. 18, the short interest in Moderna stood at 14.4 million shares, or 4.1% of the float, according to data from S3 Partners.

Computerized trend-following hedge funds, on the other hand, suffered a “significant” drop in performance of 4% to 5% between November 25 and December 1, with losses on fixed income securities, commodities. and stocks, creating a “perfect storm,” says Berthon.

The so-called “macro” hedge funds, which bet on macroeconomic trends, lost almost 2%, mainly due to bond positioning, while merger arbitrage funds, which use transactions, fell slightly. increased, he added.

Some hedge funds are expected to reduce risk this month, in an effort to preserve returns during what has been a strong year for many, Berthon said.

“We’re now three weeks away from the end of the year, so it’s unlikely we’ll see any funds trying to be heroes and trying to reestablish a major game to capture the rebound,” he said. .

Reporting by Maiya Keidan in Toronto, additional reporting by Lewis Krauskopf in New York Editing by Ira Iosebashvili and Peter Graff

Our standards: Thomson Reuters Trust Principles.