Hedge Fund Performance Rebounds on the Road to COVID-19 Recovery – ValueWalk Premium
Hedge Fund Performance

Hedge Fund Performance Rebounds on the Road to COVID-19 Recovery

Hedge funds deliver their highest monthly return since 2009 as public markets record historic rally

After recording substantial losses in March, hedge fund performance bounced back in April 2020. The Preqin All-Strategies Hedge Fund benchmark returned +5.82% in April, the highest monthly return since May 2009 (+6.56%). Performance was boosted by a substantial recovery in public markets as many countries began to ease lockdown restrictions brought on by the outbreak of COVID-19, signaling a potential economic recovery.

Q1 2020 hedge fund letters, conferences and more

Hedge Fund Performance

The rebound in public markets was seen around the globe. In the US, despite GDP falling 4.8% in Q1 2020 – the largest decline since 2008 – the S&P 500 PR Index recorded its strongest rally in 30 years. Investors were encouraged by Federal Reserve intervention, the US government’s $2tn stimulus package, and the easing of some coronavirus-related restrictions. Markets also rose in Europe as governments began to relax lockdowns. Switzerland, for example, became the first European country to reopen its hospitality sector. In Asia, the NIKKEI 225 Index was up 6.75% as trading steadied in the second half of April. And after news spread about a possible coronavirus treatment, the index made further gains later in the month.

With markets around the world recovering, most hedge fund strategies were able to capitalize.

Equity Markets Delivered for Investors

Equity strategies were the top performing hedge funds in April 2020. Their return of +7.40% for the month is almost two percentage points higher than that of the Preqin All-Strategies Hedge Fund benchmark, showing that long equity market exposure delivered for investors in April. In a similar trend to the wider hedge fund market, equity strategies posted their best monthly return since the soaring equity markets of 2009, a year in which they produced an annual net return of +40.78%.

North America-focused hedge funds delivered the highest return among top-level regions, returning +7.47% in April as the S&P 500 rallied to +12.68%. Indeed, funds providing a North America-focused long-bias equity strategy were the standout performers in April with a return of +15.09%, even outperforming the S&P 500.

Protective Strategies Still Lead in 2020

After recording the highest return among top-level hedge fund strategies for Q1 2020, CTAs saw their fortunes reverse. CTAs’ April return of +0.61% is the lowest of all strategies, as shown in the chart above. That said, with an 2020 YTD return of +1.64% as of April, CTAs remain the only top-level strategy in the black so far this year.

Macro strategies, while not in the black, have also limited investor losses thus far in 2020. After returning +3.22% in April, macro strategies’ YTD return stands at -1.58%, a significantly lower loss than the public market (-9.85%), and indeed other hedge fund strategies.

Timing a Comeback

Although returns surged in April, hedge funds remain underwater in 2020. Hedge funds have lost 5.62% in 2020 up to 30 April, with performance not yet recovered from a Q1 loss of 10.94%. While investors will have welcomed these improved returns, they will be expecting hedge funds to capitalize on any further recovery in 2020. And with public markets continuing to rally – the S&P 500 produced a return of +4.53% in May – hedge funds may be completing their comeback sooner rather than later.

For a full breakdown of hedge fund performance in April 2020, read our latest factsheet.

For more insights and analysis on the impact of the pandemic on alternative assets, take a look at our COVID-19 Knowledge Hub.

Article By Christopher Beales, Preqin

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