Equity hedge funds outperform in 2021 despite volatility and soaring retail sales

‘Stock Exchange’ is seen above an entrance to the New York Stock Exchange (NYSE) on Wall St. in New York, U.S., March 29, 2021. REUTERS/Brendan McDermid/File Photo

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TORONTO, Jan 13 (Reuters) – Stock-picking hedge funds overall outperformed the broader sector with double-digit returns in 2021, despite a year plagued by volatility and a new force of unpredictable retail traders flooding the market to support “meme actions”. “

On average, equity hedge funds made gains of 12.3% in 2021, compared to 10% for their peers more generally, according to data from industry tracker eVestment.

Last year, thousands of retail investors congregated on social media websites to share information about stocks and short sellers, making the stock picking process much more dangerous.

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“There were so many different potholes that managers could have fallen into,” said Darren Wolf, global head of investments, alternative investment strategies at Aberdeen.

“In the long-short equity space, you’ve had to deal with a whole host of issues throughout the year, starting with the same short cuts in January and which had implications throughout the year.”

Wolf said long-short hedge fund managers navigated the past year by reducing gross exposure and short positions in a single name — bets on a stock’s fall — and turning to traded funds. exchange (ETF) as a replacement for these bets.

For short-term Toronto-based $1.5 billion Anson Funds, which made 45.5% of its top $950 million hedge fund in 2021, the adjustment for retail investors has become crucial for the trading.

“People have always assumed that retail traders are not a force in the market, but retail has become more active recently,” Moez Kassam, chief investment officer at Anson Investments Master Fund, told Reuters.

“It’s the new crowd of investors and it’s here to stay.”

Hedge funds also faced several bouts of volatility where markets fell, such as the sudden emergence of the Omicron variant in November. Read more

Some equity hedge funds, such as the UK-based Gladstone Capital Management, worth $2.7 billion, have benefited from investments in the global TMT, consumer and financials sectors in 2021 .

Gladstone has gained 7% in 2021 and 20.4% over five years, a source familiar with the matter told Reuters.

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Reporting by Maiya Keidan in Toronto Editing by Matthew Lewis

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