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Market Volatility, Novus Monthly Industry Report

State of the Industry: January 2017

Karan Katyal Senior Analytics Associate

In the latest iteration of the Novus State of the Industry, we touch on the best performing stocks & hedge funds among other factor movements.

For the interactive version of this report, please head to our Novus State of the Industry report.

Well, that escalated quickly — frenetic activity in the last week of January portends a volatile 2017 to come. The Dow, which briefly touched 20,000, quickly fell off again in the wake of President Trump’s controversial executive order regarding immigration, although US equity markets ended the month up.

Despite the maelstrom in the markets (and the world), January was actually a good month for hedge funds. The Novus Hedge Fund Universe generated 275bps, outperforming the S&P 500 and Russell 2k. Conviction names led the way, with CHTR, FB, AMZN, YHOO, BABA, PG all showing up in the top 10 (unsurprisingly, the Novus Conviction Index posted a 544bp return in Jan).

Novus Monthly Industry Report

2017 also got off to a strong start for healthcare funds, with 4 of our 5 best performing funds in that sector. All four funds (Sarissa, Consonance, Redmile and Opaleye) benefited greatly from Japanese firm Takeda’s $5.2B offer for Ariad Pharmaceuticals (ARIA), with outperformance also coming from Clovis Oncology (CLVS) and Array Biopharma (ARRY). Other highly alpha-generative sectors were Tech, Materials, and Energy—although hedge funds missed much of the upswing in Consumer names.

Our hedge fund factors continued their strong run from 2016, with each of the four factors (conviction, concentration, consensus and crowdedness) outperforming the Hedge Fund Universe, as well as broad equity indices. Crowdedness in particular is now up 20%+ on a TTM basis, all the more impressive given the 12% drawdown in Jan ’16.

Further context can be provided through the following pieces of research:

  • The Novus hedge fund universe was featured prominently in this paper by Barclays.
  • A paper detailing sector specialists in general can be found here, and health care specifically here

The background of the Novus hedge fund factors (the most popular hedge fund stocks, those with the highest conviction and concentration, and the most crowded) can be found here.

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