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Industry Analysis

State of the Industry: January 2019

The start of 2019 brought strong hedge fund performance, as markets largely replaced their December losses.

Eric Zybko
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The market launched a fierce riposte to December 2018’s poor returns, responding positively to China’s new stimulus agenda and the Federal Reserve’s cold feet on further interest rate hikes. January was in fact the S&P 500’s best month in over 30 years. Other major indices followed suit: the MSCI World was up 7.43%, the Nikkei performed at 3.79%, and the Euro Stoxx climbed 5.78%.

The Novus Hedge Fund Universe (HFU) had a return of 9.31%, beating all major benchmarks except for the Russell 2000. The HFU ended just shy of fully displacing its December losses. The record market surge led to particularly high returns for Kavi Asset Management, Dafna Capital Management, and Gratia Capital—all returning above 22%.

While each sector boasted strong returns in January, the HFU’s alpha generation was concentrated in only four sectors—Health Care, IT, Materials, and Financials. Health Care in particular outperformed the S&P by 3.19%. Communication Services (-1.24%) was the largest alpha detractor among HFU constituents. The other sector underperformances were smaller, within one percent of the benchmark.

Among the top alpha-producing stocks in the HFU this past month was Facebook, with its surprising earning results; Icahn Enterprises, which rebounded from its nadir in December and benefitted from its acquisition of RPM Automotive; and Bank of America, whose earnings signaled record profits and increased efficiency.

Turning now to the Novus 4C Indices, Concentration was up 12.09%, continuing its streak of strong outperformance. Consensus, Conviction, and Crowdedness were not too far behind; each performing above 9% month-to-date.

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