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Industry Analysis

State of the Industry: May 2019

The S&P 500 plummeted in May. Hedge funds were able to slightly protect their losses; hedge funds now outpace the S&P by 39 bps YTD.

Neha Bhardwaj
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After a strong start to 2019, the market faced a plummeting drop in May due to threats of trade war with China and Mexico, and resulting fears of an impending recession on the horizon. The S&P 500 was down -6.33%, and the Russell 2000 was down -7.75%. Hedge funds were able to slightly protect their losses, only dropping -6.08%, bringing YTD performance to 11.20%. With this, the Hedge Fund Universe portfolio has lengthened its lead over the S&P 500 to 39 basis points year to date.

Coupland Cardiff Asset Management and Naya Management led managers with implied returns of 9.57% and 7.47%, respectively. Echinus Advisors, Constellation Investimentos e Participat, and Acuta Capital Partners rounded out the top five leaders for monthly returns.

Nearly all sectors lost ground in May, with the exception of Real Estate, which returned 0.22%. The Hedge Fund Universe’s largest alpha contributions year to date have came from Health Care and Energy. The greatest losses year to date were Consumer Staples and Utilities.

On an individual security basis, Visa was the winning pick for hedge funds with a MTD alpha of 5.05%, likely the result of higher revenues and the rollout of a promising new B2B product. Microsoft held its position as the second highest generator of alpha for the month of May, with newcomers Restaurant Brand Int, Mastercard, and Charter Communications following close behind. Mastercard’s gains are driven by international growth, and Charter Communications’ bids on the divestiture of a possible T-Mobile-Sprint merger have contributed to positive performance.

The 4Cs roughly mirrored the market’s drop, with Crowdedness as the outlier at -10.30%. Our flagship Conviction Index now leads the pack at 16.76% YTD.

Hedge fund returns May 2019

The past month saw a downturn in market performance, making it the second-worst May for the S&P 500 since the 1960s and setting the stock market dangerously close to an official correction. However, despite the effects of escalating tariffs, the market has already started creeping back up, as investors hold their breath for a possible Fed rate cut.

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