Hedge funds are nothing more than pooled funds. They are an alternative investment vehicle that uses various investment strategies to maximize returns.
Robert Cannon, CEO of Cannon Wealth Solutions on hedge funds: “Hedge funds have barriers of entry, namely higher minimum investment amounts. Their lock-up periods, riskier strategies, and high fees have given them the reputation that they are more suited to wealthier clients. Whether a fund is concentrated on returns or diversification, fewer restrictions allow them to take more risks when seeking returns.” He continued, “Hedge funds can be a worthwhile investment, but the choice of the right hedge fund manager requires careful research.”
Investment planning needs prioritizing and a complete understanding of risk tolerance. An investment strategy laid out by someone with experience significantly increases results. As a fiduciary financial advisor with more than three decades of wealth management experience, Robert Cannon works with investors, businesses, and hedge funds. He offers some insights into the world of hedge funds and evaluates their performance in the past year.
Evaluation of the top hedge fund performers
In 2020, we saw 20 of the world’s best-performing hedge funds earn $63.5 billion for their clients. Their net gains set a 10-year record for them, resulting from a dramatic rebound of technology stocks. In total, hedge funds made $127 billion last year, making it a good year for them.
The top twenty hedge funds topped their $59.3 billion returns of 2019, despite the historical stock market sell-off in March and the partial shutdown of the economy triggered by the pandemic. However, 2020 was not as profitable as 2019 – $127 billion in earnings compared to $178 billion.
Hedge Fund Research Data shows that in 2020 hedge funds lagged from the 16% gains of the S&P 500 index, with average returns of 11.6%.
Among last year’s biggest earners was Chase Coleman’s Tiger Global with $10.4 billion, Israel Englander’s Millennium with $10.2 billion, and Steve Mandel’s Lone Pine, earning $9.1 billion. Viking Global Investors, owned by Andreas Halvorsen, brought in $7.0 billion, while Ken Griffin’s Citadel earned $6.2 billion.
Holding on to its No. 1 ranking was Ray Dalio Bridgewater Associates despite losing $12.1 billion in 2020. Since its inception in 1975, it has earned $46.5 billion.
Soros Fund Management held on to the second spot, with Mandel, Griffin, and D.E. Shaw making up the rest of the top five. It’s worth noting that the Soros Fund Management no longer manages outside client amounts for those who may not be aware.
Besides rankings, when looking at returns, the best performing portfolio of 2020 was the Baillie Gifford American Fund, with 122% returns for the whole calendar year. The fund rode on the wins represented by their successful choices, which concentrated on tech companies, of which the majority are in the U.S.
Fourth and fifth place went to two other Baillie Gifford portfolios, namely, Long Term Global Growth with 96% and Positive Change with 80%. Guinness Sustainable Energy came in fifth with 79.29%.
The second-highest returns of 110% were seen from Morgan Stanley’s US Growth Fund. LF Access Long Term Global Growth Portfolio returned 98%, coming in third place.
However, hedge funds were not all about the U.S. Among the top ten earners were Premier Miton UK Smaller Companies, MFM Junior Gold, and Matthews China Smaller Companies. The Asian markets were remarkably resilient, while the UK struggled to recoup the initial losses seen at the start of the current crisis.
Losers of 2020
According to the data available to us, Dalio and Paulson & Co. did not perform as well as the aforementioned hedge funds. These two hedge funds earned billions during the financial crisis on housing market bets.
Another poor performer was Jim Simon’s machine-driven manager Renaissance Technologies. This is a fund often ranked among the globe’s top performers, but in 2020, it dropped. The drop is attributed to its external fund offering, which fell between 20% and 30% last year. Perhaps people can still make better estimations than mathematical and statistical methods.
Latin American funds and energy portfolios fared the worst of all as global oil demand dwindled. Guinness Asset Management’s international energy funds lost close to 36%, giving them the first two places as the worst performers.
Others include Schroders and BlackRock’s matching funds, which lost 33.62% and 30.19%, respectively. Also coming in among the bottom five was Brown Advisory’s Latin America Fund.
Final Word
Market volatility is expected to continue in 2021, and this is the right kind of environment for hedge fund returns. Hedge funds offer a low volatility strategy that works for some investors currently finding the ultra-low rated environment stifling. Sustainability, tech innovation, activism, and capital markets trading are some areas investors are interested in.
