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Hedge Funds, Security Analysis

State of the Industry: November 2017

Raheem Shahid Analytics Associate

In the latest version of Novus State of the Industry, we examine factor movements of November 2017, including best performing stocks & funds

The Novus Hedge Fund Universe (HFU) continued to diverge from the S&P in November, a behavior we also witnessed during October. In November 2017, the HFU gained 1.79% compared to the S&P’s 3.07%.

Although the diversion has been small these past two months, the HFU is neck and neck with the S&P year to date. Interestingly, less than 1% of total YTD contribution has been generated by security selection (alpha). In other words, the hedge fund industry has generated most of its contribution by staying in the market and respective sectors, what we call “relative contribution” or “beta returns.”

In November, the HFU generated a negative alpha of 1.16%, spread across all sectors, with Consumer Discretionary being the biggest alpha detractor. However, Consumer Discretionary was also the best performing sector from an absolute contribution basis.

Looking at individual names, CVR Energy (3.01%), Twenty-First Century Fox (2.69%) and Nektar Therapeutics (2.08%) were the three biggest alpha generators, whereas Time Warner was the biggest detractor. Apple and Amazon–top alpha generators from October–slid to fifteenth place and thirty-third place, respectively.

Among the Novus Indices, Consensus was the winner in November with 2.16%, beating its cousin indices and bringing its YTD performance to 30.5%. Only two out of twenty stocks in the Consensus portfolio detracted any value in November (Facebook and Alibaba).

Correlation with Russell 3000 remains low, at 5%. This continues to provide a favorable environment for equity managers to play in.

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