New Variant Gave Hedge Funds Bloody Nose In November

Tom Burroughes

8 December 2021

The new COVID variant, aka Omicron, knocked hedge funds in November as investors took chips off the table, figures from the industry show.

The drop in returns for November was the largest single-month fall since the pandemic-ravaged month of March 2020, , the Chicago-based organization, said.

The investible HFRI 500 Fund Weighted Composite Index fell 1.6 per cent in November, reversing the prior month’s advance, while the HFRI Fund Weighted Composite Index® (FWC) fell 2.2 per cent.

“Hedge funds posted declines in November led by equity hedge and macro strategies, the largest decline in 18 months since the massive market dislocation to begin the global coronavirus pandemic, with losses primarily attributable to a steep, late-month global equity market selloff driven by investor panic related to the spread of the Omicron coronavirus variant,” Kenneth J Heinz, president of HFR, said.

Performance dispersion of the underlying index constituents remained relatively unchanged in November, with the top decile of the HFRI gaining an average of 3.9 per cent, while the bottom decile fell by an average of 10.0 per cent for the month, representing a top-bottom dispersion of 13.9 per cent for the month, versus a top-bottom dispersion of 13.6 per cent in October.

Equity hedge funds, which invest long and short across specialized sub-strategies, led the fall. The investible HFRI 500 Equity Hedge Index slid 1.9 per cent for the month, cutting its year-to-date return to 9.6 per cent, while the HFRI Equity Hedge (Total) Index lost 2.7 per cent.

Macro strategies also fell, as a cut to risk exposures hit equities and commodities. The HFRI Macro (Total) Index declined 2.4 per cent, while the investible HFRI 500 Macro Index fell 2.5 per cent for the month.

Fixed income-based, interest rate-sensitive strategies posted mixed performance for the month, as the yield curve flattened on falling interest rates, and as investors continued to position for the near-term tapering on bond purchases by the US Federal Reserve.

The investible HFRI 500 Relative Value Index fell 0.2 per cent for the month, while the HFRI Relative Value (Total) Index fell 0.7 per cent.

Event-driven strategies, which often focus on out-of-favor, deep value equity exposures and speculation on M&A situations, also posted mixed performance in November, with declines in special situations offsetting minor gains in merger arbitrage and distressed strategies.

The investible HFRI 500 Event-Driven Index fell 0.7 per cent, while the HFRI Event-Driven (Total) Index also fell 1.5 per cent for the month.