Weekly Update

Hedge funds accelerate stock sales despite market rebound

Hedge funds are dumping stocks at their fastest rate in over two years, even as markets show signs of recovery. US funds are selling equities at levels not seen since Russia’s invasion of Ukraine in March 2022, according to a recent report from Goldman Sachs. This sell off persists despite a global market rebound, which followed sharp declines partly triggered by the unwinding of the Japanese yen carry trade at the end of July.

The Nasdaq 100, which is heavily weighted in technology stocks, has surged by 11%, and the S&P 500 index has risen by 8% since hitting a low on August 5. Despite this, Goldman Sachs analysts observe that hedge funds remain wary. Many are skeptical of the current market rally and concerned about upcoming challenges, including the US presidential election in November.

The report highlights that short sales are a major factor driving the ongoing sell-off, particularly in North American stocks, with large-cap tech companies being sold off the most. Hedge funds are also trimming their holdings in Asian and European markets, especially in Japan and China. In response, US hedge funds are reallocating their focus towards sectors like energy, utilities, and real estate, favoring high-dividend equities as they adjust their portfolios.

Weak bank research fuelled 19% gain, says Aussie hedge fund Tribeca

Tribeca Alpha Plus Fund, Australia’s second-highest performing hedge fund, has leveraged increased market volatility during earnings seasons, attributing its nearly 19% return over the past year to inadequate investment bank research. According to a Bloomberg report, Jun Bei Liu, a portfolio manager at the Sydney-based fund, noted that rapidly evolving industries have outpaced traditional equity research by banks and brokerages. The rise in automated trading has further widened the gap between market pricing and the fund’s independent analysis.

A report from JPMorgan Chase & Co on March 1 indicated that February’s earnings season was the most volatile for individual Australian stocks in 15 years. The Alpha Plus fund, which manages approximately AUD1.35 billion ($910 million) with a long-short strategy focused on Australian stocks, has achieved substantial gains in its top holdings. For instance, Goodman Group shares have risen 32% year-to-date, while Life360 has surged 144%. A2 Milk Co, another position in the portfolio, has climbed 35% over the same period.

Brambles, the fund’s largest holding, saw its stock jump nearly 12% after its earnings report on Wednesday. Liu noted that such a significant gap between market expectations and actual results is rare for one of Australia’s largest companies.

Hedge funds up 0.6% in July, says Citco

Hedge fund performance saw improvement in July, with an average weighted return of 0.6%, up from 0.4% in June, as reported in Citco’s latest Monthly Hedge Fund Update. Over two-thirds of hedge fund strategies ended the month in positive territory. According to data from Citco, which services $2 trillion in assets under administration (AUA), fixed income arbitrage led the performance with a 1.4% weighted average return, followed by multi-strategy and global macro funds.

All AUA categories posted positive returns in July. Notably, funds managing between $1 billion and $3 billion in assets achieved the highest weighted average return of 1.1%, with funds holding $200 million to $500 million closely behind at 0.8%, highlighting strong performance among mid-sized funds. Hedge fund capital flows also returned to positive territory, with net inflows of $3.3 billion. Subscriptions reached $10 billion, outpacing redemptions of $6.7 billion, bringing year-to-date net inflows to $3.1 billion.

Treasury payment volumes set a new record in July with 52,650 transactions, surpassing the previous peak in December 2023, indicating continued robust market activity. Regionally, funds in the Americas saw net inflows of $1.9 billion, and Europe recorded $1.6 billion in positive net inflows, while Asia experienced a net outflow of $0.2 billion.

Point72 ups London headcount by 30%

Despite incurring a $21 million loss in 2023, following a $77 million profit the previous year, hedge fund Point72 Asset Management’s London subsidiary, Point72 UK Limited, has increased its workforce by 30%, according to eFinancial Careers, which cited the company’s latest financial statements.

Point72 UK added 48 employees over the past year, growing its team from 196 to 254. This expansion raised the overall wage bill, although the average pay per employee decreased from $819,000 in 2022 to $696,000 in 2023.

The drop in average pay likely reflects reduced bonuses, as the firm’s financial performance declined. In 2022, Point72’s London operation generated $441 million in revenue, which fell to $299 million in 2023.