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Hedge Funds, Security Analysis

State of the Industry: April 2018

Matt Giordano Vice President, Client Analytics

In the latest edition of Novus' State of the Industry, we examine factor movements from April 2018, including best performing stocks & funds.

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

The U.S. market underperformed global indices last month, with the S&P down 70bps YTD (up 38bps in April) to the EuroStoxx’s positive 223 bps (570 bps up in April) and the Nikkei’s flat performance (up 467 bps in April).

The Novus Hedge Fund Universe (HFU) has generally mirrored the S&P so far this year, with a bit of beta attached. (This isn’t too surprising considering the U.S.-centric nature of the HFU data.) In April, the index was up 57 bps, bringing the YTD to nearly flat performance for the year. Of the Novus factor indices, Conviction and Consensus were the better performers, with the Crowdedness index slumping due to micro-factors (as is expected from time to time). All in all, Conviction is up 2.49% for the year—adding another month to its multi-year outperformance record—Crowdedness is down 1.90% YTD, and Consensus is up 1.25%.

Looking closer at the top-level HFU and cross sectioning by sector, we noticed a few trends for April emerge compared to the U.S. markets. The HFU’s Telecom allocation (a hedge fund favorite) heavily outpaced the U.S. market, with 3.49% alpha in April, bringing the YTD total to 4.69%. Interestingly, another industry sector playground was the largest alpha detractor: Discretionary names underperformed by 1.68% in April and 4.09% YTD.

As usual, all five top-performing funds have < $1bln in reported LMV, lending evidence to the adage that small managers have the best ability to outperform by staying focused on their core competency. VHCP Management (LMV $555mm, April Performance 20.8%) and CPMG (LMV $186.5mm, April Performance 19.9%) led the way this month.

Lastly, let’s look at market conditions for HF performance. Rolling five-year dispersion continues to stay range-bound between 0.15 and 0.11, and was essentially flat in April ending at 0.1368.  Correlation, on the other hand, slightly reversed its recent spike, settling at just over 17.5%. With dispersion remaining range-bound, watching to see whether correlation’s momentum has halted or if this is just a momentary pause will be the main determinant for stock pickers heading into the second half of the year.

 

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