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Industry Analysis

State of the Industry: February 2019

Hedge funds are outperforming the recovering market so far in 2019. E-Commerce and Concentration names led hedge funds to alpha in February.

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

The market’s rebound from Q4 woes continued into February, albeit at a slower pace. Several major indices eclipsed 10% YTD returns, representing one of the best starts to a year in market history. The Hedge Fund Universe (HFU) returned an additional 3.24% this month, bringing YTD performance to 13.09% and outpacing the S&P 500’s 11.50%.

Kora Management LP lead managers with implied returns of 15.9%—but high returns were available for managers of all sizes, as three of our top five carry market values greater than $1B.

As far as individual positions go, e-commerce companies Wayfair and Alibaba (and consequently Altaba) benefitted from strong earnings and future revenue predictions to produce the top three alpha-adding securities.

Our sector analysis found Industrials and IT to both be a source of healthy market returns, but it was the likes of Consumer Discretionary (owner of our top three positions) that generated the greatest alpha (1.89%) in February. Health Care once again produced significant alpha (1.44% MTD/5.36% YTD), while a rough month for the HFU in Consumer Staples resulted in YTD underperformance of 4.16%.

Continuing a recent trend, Concentration led the Novus 4C Indices in February. With a high exposure to the Health Care sector, Concentration further separated itself from the HFU and the remaining 3Cs with February returns of 7.31%—taking its YTD total to 23.68%.

Hedge Fund Factors

With several events with market implications on the horizon in March (the Brexit deadline, U.S.-China Trade Summit, and Fed Meeting), a steady February that built on the January gains eased some qualms about market volatility.

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