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State of the Industry: May 2017

Matt Giordano Senior Analytics Associate

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

For an interactive version of this article, please click here.

US Equities and their HF Counterparts continued their strong year in May, as no geopolitical event or economic data point has been able to shake the market’s confidence.  The Novus Hedge Fund Universe was up 0.75% in May, bringing it to 8.6% on the year.  This equals the S&P 500 return YTD, as the market outpaced the industry to the tune of 0.65% over the month, eliminating the industry’s lead for the year.

Why is this?  In May, Health Care and Telecom were significant laggards (-1.98% of alpha between the two).  Significant outperformance in RE, Staples, and Financials were not enough to offset this, hampering industry returns.

monthly report - sectors

monthly report - sectors

Diverging from the HFU/Market dynamic, the pre-existing trends in the Novus Factor Index universe continued in May.  Conviction continues to considerably outpace the broader industry (and market), returning 19.8% YTD after a strong May.  Consensus and Crowding also continue to outperform (13.3% and 11.7% respectively) in the relatively calm waters.

hedge fund factors

Generally looking at the top alpha generative names within the HFU for May, JD moves up to the top spot from number 5, while the rest of the top 5 turned over (a consistent turnover rate over the past few months).  Some familiar names from earlier in the year have returned, namely AMZN and AAPL.  Looking year to date JD, AMZN, and AAPL all rank in the top 5.

hfu alpha generators

To wrap up, let’s take a quick aside this month and shift back to the factor indices for a moment.  What has been driving the outperformance in Conviction this year? True to its model, it’s more concentrated position in AMZN has helped (100bps of alpha versus 11 in the HFU), but the larger story is more than that as security selection has played a role as well.  None of the other top 5 alpha generative names correspond with those of the HFU (TDG, BABA, PYPL, and PLCN).

conviction index alpha

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