Hedge fund investors seemed pretty happy overall with hedge fund performance during Q1 2018, as managers took advantage of the increased market volatility, and the opportunities that created, for many to outperform.
Performance became more difficult overall during Q2 and fund returns by and large lagged, says Cowen Prime Services in its latest market summary.
The average return in Cowen’s universe for Q2 was 1.84 per cent, bringing the average year-to-date return to 4.26 per cent. The median quartile in this group showed gains of 1.44 per cent and 3.04 per cent, respectively, QTD and YTD.
Returns in equity long/short healthcare dedicated strategies continued to lead in the second quarter overall, though with noticeable dispersion in the sector and hedge fund returns. The difference between the 1st and 4th quartiles was widest among all categories, and even the spread between the 2nd & 3rd quartiles, at 3.3 per cent, is among the widest of the observed strategies. June, in particular, appeared to be a differentiating month within the strategy, highly idiosyncratic with little beta pushing prices in either direction. The funds either owned the names that performed or they didn’t.
Fund returns for June appeared to fall in the 4-8 per cent range or down multiple percentage points, with little in between. It was observed that the average return at 1.43 per cent, anchored by an 8.2 per cent gain at the top end and a 4.6 per cent drop on the downside. Looking at the healthcare stocks in the Russell 3000 Index, with a particular emphasis on biotechnology names, the average sector return was 7.5 per cent, but median return was just about flat. The dispersion of returns among biotech names from the 1st to 4th quartiles was -19.6 per cent/-0.62 per cent/21.9 per cent/375 per cent. Clearly, within biotechnology, there are big winners and losers, a reminder that stock picking in this sector is paramount and the returns among the healthcare dedicated hedge funds certainly exhibited this action during the first half. The healthcare space is a stock picker’s market and June’s wide performance range was an example that highlighted this.
Overall, rolling annualised returns continued to trend upwards and dispersion widened out.
Alpha generation, as observed over a 2-year rolling period, remained stagnant over the quarter, however. While the top and bottom quartiles can be skewed by one or two outliers, the two middle quartiles in the following chart are still tracking 3 per cent-10 per cent annualised alpha generation.
