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State of the Industry: August 2018

Raheem Shahid Senior Associate, Client Analytics

Most indices were up in August, and the Concentration Index continues its breakaway streak. Hedge funds start to lag behind the S&P 500 YTD.

For the accompanying interactive version of this report, please head to the State of the Industry dashboard.

Despite geopolitical risk around the globe—Turkey’s Lira decline, Italy’s debt issue, the China-US debt war, and Venezuela’s inflation—most major indices were up in August. Only the Euro Stoxx 50 was down by -3.73%. Specifically for the US, the S&P 500 continues the longest bull market run in history. It posted a return of 3.7% in August. Retail sales were up 0.5% versus analyst’s estimates of 0.1%, interest rates dropped slightly, and employment gains and GDP continue to grow.

The Hedge Fund Universe (HFU) was up 2.31%, marking another month of underperformance against the S&P 500. YTD performance lags behind the S&P 500’s 9.97% growth at 8.67%. Last August, the S&P 500 and HFU were competing closer together around 12%.

Taking a cross-sectional view of the HFU, all sectors but two were up in August 2018. Energy was the biggest detractor; though we did see an increase of 1.5% in West Texas Intermediate. This marks the end of a winning streak of positive Energy returns going back to Feb 2018. On the other hand, Information Technology (5.63%) and Healthcare (4.98%) were the highest performers. Consumer Discretionary saw the biggest gap in returns: the S&P 500 generated 5.05% against HFU’s 1.52%.

Amongst the Novus 4Cs, Concentration continues its run gaining 6.6%. This brings the YTD performance to 34.1%, followed by Consensus (16.1%) and Conviction (14.4%). Contrary to last year, where Conviction was a star performer, Concentration has taken over the number one spot. Some key contributors behind this spectacular performance are Carvana, Health Insurance, and Genomic Health INC. The Concentration Index tracks stocks with the highest percentage of shares held by hedge funds.

Hedge Fund Indices August 2018

Not surprisingly, Apple and Amazon remain the best alpha generators. They’ve contributed 31.9% and 30.6% of alpha YTD, respectively. Amazon is following in Apple’s footsteps as the second company to hit the one-trillion-dollar mark.

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