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Novus Monthly Industry Report

State of the Industry: December 2018

Kayla Young Client Analytics

December's disappointments resulted in markets & hedge funds finishing negative YTD. However, most of Novus' 4C Indices were positive YTD.

The companion report for this summary can be viewed here: Novus State of the Industry report.

After attempting to rally in November, December was disappointing for markets. Although the S&P 500 was able to pull out of the Christmas Eve nosedive, the index still posted a MTD performance of -9.02% and a YTD performance of -4.52%. The MSCI World Index, Euro Stoxx 50, and Nikkei 225 all posted negative returns for the year as well, thanks to December.

The top alpha-generating stocks for December were Cheniere Energy (which produces and markets liquid natural gas), followed by Twenty-First Century Fox, Broadcom, Coca-Cola, and Herbalife Nutrition.

Sun Valley Gold had the highest implied performance at 5.81%, with almost a quarter of their portfolio in the Materials sector. They drastically outperformed Steelhead Partners at 0.39%, the second highest. Third, fourth, and fifth place actually showed negative implied performance, exemplifying the difficulty in the overall market faced this period.

The Novus 4C Indices all had negative performance during December, but notably three of the four—Consensus, Concentration and Conviction—performed positively for the year at 22.78%, 21.31%, and 12.71% respectively. Crowdedness was the only negative performer YTD.

This month, the Hedge Fund Universe (or “HFU,” Novus’ curated list of tracked hedge fund managers) just outperformed the S&P 1500 in general, demonstrating a slight ability to minimize losses. The only sectors in which the HFU generated negative alpha were Health Care and Industrials. The Energy sector produced the greatest alpha, followed by Materials. In 2018, the HFU generated the highest alpha in the Communication Services sector, at 6.14, followed by Industrials. Notably, the Communication Services sector is new this year and contained one of the highest alpha stocks during December, Twenty-First Century Fox.

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