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Hedge funds: strategies that outperformed in 2018

Distressed debt and origination and financing strategies outperformed most of their peers last year

It wasn't all doom and gloom for the hedge funds industry in 2018. 

While hedge funds clocked their worst performance since 2011, there were certain strategies that awarded investors.

‘The story in 2018 was very fund-specific, with some funds performing very well, while other funds faltered,’ said Peter Laurelli, global head of research at industry tracker eVestment.

Laurelli estimates that aggregate performance of the industry was down by 4.86% last year. Meanwhile, the Eurekahedge Hedge Fund index, tracking 2525 hedge funds globally fell by 3.35%.

Here are the hedge fund strategies that managed to navigate choppy markets, outperform their peers and deliver positive performance to investors in 2018.

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It wasn't all doom and gloom for the hedge funds industry in 2018. 

While hedge funds clocked their worst performance since 2011, there were certain strategies that awarded investors.

‘The story in 2018 was very fund-specific, with some funds performing very well, while other funds faltered,’ said Peter Laurelli, global head of research at industry tracker eVestment.

Laurelli estimates that aggregate performance of the industry was down by 4.86% last year. Meanwhile, the Eurekahedge Hedge Fund index, tracking 2525 hedge funds globally fell by 3.35%.

Here are the hedge fund strategies that managed to navigate choppy markets, outperform their peers and deliver positive performance to investors in 2018.

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Distressed debt

Distressed debt managers outperformed most of their peers last year, with the Eurekahedge Distressed Debt Hedge Fund index up 3.65%.

These managers invest in undervalued companies that are failing, bankrupt or in the process of a turnaround.

Puerto Rican debt and energy companies reportedly fueled the performance of several distressed debt funds last year.

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Origination and financing

Origination and financing funds were another bright spot in 2018, returning 3.94% at the end of December, according to eVestment data.

This hedge fund strategy seeks to generate returns by originating loans and debt, or by financing entities. These funds are an alternative source of capital for both public and private companies.

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Long volatility

Unsurprisingly, the CBOE Eurekahedge Long Volatility Hedge Fund index gained 2.4% last year. The index tracks 10 funds that take a net long view on implied volatility.

The index’s performance was supported by a whopping 7.11% gain in December, driven by a spike in market volatility during the month.

The CBOE Volatility index, a gauge of expected price fluctuations in the S&P 500 index, went as high as 36 in December.

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Fixed income

Fixed income managers ended 2018 in the green, Eurekahedge data showed.

The Eurekahedge Fixed Income Hedge Fund index was up 0.22% last year, amid concerns over an inversion in the US Treasuries yield curve and tightening central bank liquidity.

Fixed income-focused hedge funds invest in debt instruments, employing long, short and mixed strategies, and conduct arbitrage by exploiting pricing anomalies in similar securities.

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