The Pivotal Point of View Commentary
The takeaway first:
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Media headlines continue to focus on a few large hedge funds which have struggled in 2022, reinforcing the narrative that hedge funds as a group have struggling mightily.
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A broader analysis of the data paints a much more positive picture, illustrating that these large single fund losses are outliers and not reflective of the industry.
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The PivotalPath Composite lost only 1% through May. Of the ten super strategy indices covered by PivotalPath, five are positive, four are negative and one is flat through May.
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47% of all hedge funds are positive YTD, while 62% have lost 1% or less. 8% have lost more than 25%.
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YTD through May, the Composite Index is outperforming the S&P 500 by ~12%. That spread has only grown thus far in June.
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One would have to go back to 2008 to find a larger outperformance in a calendar year.
The backdrop:
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May provided a slight and temporary respite (S&P 500 and Russell 2000 roughly flat and the Nasdaq falling ~2%) in the midst of spiraling inflation further induced by a slow Fed and global central banks, open ended war and continued supply shocks.
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The S&P, Russell 2000, and Nasdaq are still down 13%, 17%, and 23%, respectively, through May.
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Commodities, led by natural gas futures (+12.4% MTD and +118% YTD) and crude oil futures (+9.5% MTD and 52% YTD) continue to push higher while China slowly started re-opening after Covid shocks and lock-downs.
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The downturn in Bitcoin (-17% MTD and -31% YTD) and Ethereum (-30% MTD and -47% YTD) helped fully dispel the notion of cryptocurrencies acting as a hedge against inflation.
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PivotalPath Baskets most sensitive to interest rates and overall economic downturns fell significantly in May; the worst performing was the Transportation Basket (-20.5%), including names such as Carvana and Lyft which were down 49% and 46%, respectively; Brick and Mortar Retail was down 14.3%, Food Delivery -11.8%, and Small Cap Biotech -11.2%
Global macro, CTAs and quant strategies in general continue to perform:
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The PivotalPath Global Macro Index and the Equity Quant Index gained 0.2% and 1.6% respectively in May and are up 9.7% and 4.2% YTD.
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Managed Futures is still the best performing index YTD (up 13.9%) after a 0.4% decline in May.
The equity impact:
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PivotalPath’s Equity Diversified Index (L/S equity strategies globally) is down only 5.5% YTD as funds pared risk coming into 2022.
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Its beta of 0.27 to the S&P 500 is the lowest level since January of 2019 and December of 2009 before that.
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Just like the sectors they trade, equity sector focused PivotalPath Healthcare Index and Technology Media and Telecom Index have led sector strategies lower, shedding 5.4% and 4.9% respectively in May and down 19.5% and 18.6% YTD.