In a typical year over the last decade, smaller hedge funds tend to outperform their larger peers. But in the unique environment that we’ve seen this year, the opposite is turning out to be true, for a few reasons.
The PivotalPath Asset Weighted Composite Index, which gives more weight to larger funds, is down only 2.3% this year, compared to the Equal Weighted Composite Index (which equally weights every fund regardless of size) that is down 4.4% through September.
This phenomenon can be partially explained by the recent market environment which has been best captured by medium to long-term trend following within Managed Futures.
Due to the scale of these strategies, larger managed futures funds typically need to deploy more capital to medium/long-term trend following than their smaller, less constrained peers. I.e., larger funds have outperformed in 2022 BECAUSE of restrictions from their large capital base while smaller funds, which often benefit from nimbleness, were less successful.
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