This content is from: Portfolio

The Hottest Hedge Fund Strategy of 2020

Equity-sector hedge funds are delivering their best performance in decades, inspiring a wave of new funds.

Nearly half of all hedge funds launched this year specialize in the same strategy — and it’s “no surprise” which one, according to PivotalPath.

A report from the hedge fund data firm says that equity-sector hedge funds made up 45 percent of funds introduced during the first 11 months of 2020. Managers focused on such sectors as energy, financial services, health care, or technology, media and telecommunications had accounted for 32 percent of fund launches over the same period last year.

Including diversified equity strategies, stock-centric hedge funds have made up 77 percent of launches this year, according to PivotalPath. Diversified equity strategies include long-short bets on stocks in the U.S. and globally.

The flurry of new equity-sector funds comes during a banner year for the category, including a 6.8 percent gain in November — the highest monthly return recorded by equity-sector hedge funds since 2000, according to PivotalPath.

This compares to a 5 percent gain for the overall hedge fund industry in November, and a 10.7 percent return for the Standard & Poor 500 index. PivotalPath draws its data from a group of more than 2,000 “institutionally relevant” hedge funds representing $2.3 trillion in assets under management.

[II Deep Dive: It May Finally Be Hedge Funds’ Time to Shine]

Year-to-date, PivotalPath said equity-sector hedge funds were up by nearly 20 percent, outperforming all other hedge fund strategies by a wide margin. The next-best strategies were diversified equity and event-driven funds, both up around 10 percent for the year. 

Equity-sector hedge funds produced the most alpha, or excess returns, in both the second and third quarters, according to PivotalPath. In the first quarter, that honor went to managed futures funds.

“Equity sector tops the charts for performance and alpha this year,” PivotalPath said in the report on the data. “It’s no surprise equity-sector funds comprise the most fund launches through November of this year.”

Related Content