Hedge Funds Got Turned Upside Down In January

Gone are the days when a hedge fund could go long the market, lever up to its eyeballs and watch the money roll in (at least for now).

According to a report from research firm Prequin, hedge funds got spanked in January, returning an average -0.17% for the month.

The firm hasn’t reported negative numbers like that since August of 2013.

Additionally, the strategies that ruled the year 2013 were some of the worst performers of January 2014.

The reason for this is pretty clear, the market has taken a turn for the choppy since 2014 began. Last year the S&P 500 was a money tree, climbing 30% and boosting up all kinds of stocks like ships in a rising tide.

All that is over now. Long short funds, the second best performing strategy in 2013, got it bad in January 2014 returning -0.28%. Long biased funds got it even worse, returning -1.45% on average.

Conversely, strategies that performed poorly in 2013 had their day. Relative value funds, for example, were at the bottom of the barrel in 2013, returning only a little over 5% in a year when the best hedge fund strategy (activist) returned slightly over 19%.

In January, however, relative value led the pack, returning 1.43%.

Another change in January — European hedge funds outperformed hedge funds in the United States and emerging market focused funds returned -2.27%.

Who was last will be first, and who was first will be last.

Here’s are some more key points from Prequin’s research:

  • Macro strategies posted similar returns to the overall hedge fund benchmark (-0.15%).
  • Europe was the top performing regional benchmark with funds focused on the region returning 0.65%, marginally ahead of North America-focused funds (+0.55%).
  • Funds of hedge funds again underperformed compared to the overall hedge fund benchmark, with average returns of -0.57%.

Be careful out there, things can change really fast.

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