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Industry Analysis

State of the Industry: December 2019

A look at how equity markets and hedge funds performed during the final month of the year, and a retrospective of top alpha-generating stocks in 2019.

Daniel Ifraimov
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2019 was a year of market resilience as bullish investors shook off negative headlines and led markets to record highs. Except for only two months—May and August—monthly returns were accretive for investors in the broader market last year. The S&P 500 was up 3.02% in December, continuing its rally from November and concluding the year with a strong return of 31.47% YTD. The Russell 2000 was up 2.86% (24.89% YTD), MSCI World returned 2.34% (28.06% YTD) and the Euro Stoxx reported 1.35% (28.40% YTD).  

With these indices returning well into the double digits for the year, it is evident that passive investors fared well in 2019. But how did active investors perform in December, and in a year that lacked the volatility many prefer? Let’s check in on our Novus Hedge Fund Universe (HFU) to analyze how hedge funds finished out the year.    

Top Managers

VHCP Management led the way, posting a 33.75% return for the month of December. Using the Novus Framework, we see that most of the contribution came from Axsome Therapeutics Inc. (AXSM). Axsome Therapeutics traded at $8.39 at the end of January and closed the year at $103.36. The biotech company had its strongest rally in December, after it announced positive results from its phase II trial of AXS-12 (which treats narcolepsy) and priced an underwritten public offering of 2 million shares of its common stock at $87 per share.  

Acuta Capital Partners also performed quite well, continuing its streak from November, posting 23.95% for the month. Worm Capital followed, returning 22.60%.  

Alpha Stocks for Hedge Funds

Apple (AAPL) held on to its spot as alpha generator number one for Hedge Funds; it led the pack in December generating investors 15.66 (bps) of security selection alpha. The iPhone maker returned 86% for the year, achieving its best annual return since 2009. Bank of America (BAC) and Synthorx (THOR) also joined the list generating 5.04 (bps) and 3.17 (bps) respectively.  

Hedge Funds generated the most alpha in Energy, Communication Services and Materials sectors in December. For the year, Hedge Funds found the most alpha in Health Care, Consumer Discretionary and Real Estate names.

To wrap up 2019 in style, let’s take a look back at the top contributing alpha stocks by quarter...

AAPL was also the highest contributor to the HFU for the decade. Like Apple, many of the same players persisted from quarter to quarter. Only Wells Fargo, American Express, P&G, and Alphabet appear only once in these lists.

The 4Cs

Of the Novus 4Cs, all indices generated positive returns in December.

Concentration was the best performer by a significant margin, returning 8.16% for the month. PG&E led the way for the index, bringing in 154 (bps) of alpha after the company reached a deal on compensation for wildfire victims. Consensus (3.75%), Conviction (3.35%) and Crowdedness (2.59%) rounded out the top 4. For the year, Conviction (37.42%) and Consensus (34.96%) outperformed the S&P (31.47%). The HFU, however, lagged behind at 27.88% in 2019.  

For a look at hedge fund and 4Cs performance over the last decade, check out our Decade in Review post.

As we enter the New Year, here’s to markets continuing to ride this momentum and posting strong returns, while also introducing new opportunities to uncover investment edge for managers.

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