Chinese Long Short Equity hedge funds substantially outperformed their American equivalents in 2021, according to research carried out by AlternativeSoft.

Marketa globally had a year of extreme volatility in 2020 due to the ongoing pandemic. According to the World Economic Outlook report by IMF in January 2021, the overall world output fell by 3.5 per cent. China was the only country with a positive growth of 2.3 per cent, while the United States fell by -3.4 per cent. United States and China constitute 40 per cent of the world’s GDP.

AlterntiveSoft selected hedge funds with AUM greater than USD10 million, with an investment geography focus in China and United States. Some 59 funds from China and 210 funds from the US were chosen with a weighted index created based on the hedge funds’ AUM.

Chinese Long/Short Equity Hedge funds outperformed American hedge funds with the funds focuses on the United States having negative cumulative returns throughout 2020 only reaching a positive return of just 1.46 per cent by the end of the year.

According to AlternativeSoft, the negative performance of US L/S Equity funds is down to two main factors – that the S&P 500 has substantially underperformed the Chinese Index S&P GXC in 2020 (16.84 per cent vs 24.26 per cent respectively), and that US Equity L/S HFs have been able to only capture only a small part of S&P500 rebound between April 2020 and December 2020 (17.16 per cent of the L/S funds vs 45.33 per cent of S&P500). This is highlighted by the low beta to the index during this period (0.44). On the contrary, Chinese L/S HFs have been able to match the rebound of GXC (40.15 per cent of the L/S funds vs 44.35 per cent of GXC), reflected in a higher beta during this period (0.74).

In conclusion, the Long/Short Equity hedge funds with a geographic focus on China greatly outperformed funds that had a geographic focus on the US In terms of cumulative returns, Chinese-based funds were at 37.46 per cent in December while US funds were only at 1.46 per cent.