Could A Significant Hedge Fund Performance Shift Be On The Way?

Is hedge fund performance about to change? While it is too early to categorize this as a trend, there is a subtle shift taking place on the HSBC Hedge Weekly performance list that we’ve been noting. Last week, with nearly ¾ of the top 20 hedge funds being of the managed futures CTA variety, public discussions regarding trend reversals in key commodity markets and a more bullish trading range in stocks were top considerations leading some to wonder if CTA market environments were on the verge of changing. A subtle shift in the HSBC index, while not definitive, could be an early indicator of that trend.

Hedge fund performance: CTAs still dominate HSBC Hedge Weekly list, but grip is slipping

For the most part the HSBC hedge weekly performance list remains a CTA affair. But unlike last week, when CTAs dominated more than ¾ of the top performers, that number has dropped by a few funds.

Further, the Millburn Diversified Program, which is a multi-factor systematic program that has trend following models alongside counter trend formulas, has appeared on the list. In a market environment where trend reversals have led to a bullish stock market – the S&P 500 broke the 2000 level today – when will that point come when mid-term time horizon trend followers start falling off the performance list?

Noticeable performance variance as market environment shifts

Not only have certain managers fallen off the HSBC performance list, but there is a decidedly different tone to performance. Of the top five hedge funds from last week, everyone reported lower performance this week. Not all were managed futures CTAs, but it does illustrate how when a market environment changes performance expectations should be adjusted.

Conquest Macro Fund was up 25.89% and the Tulip Trend Fund was up 24.05%. This week performance is down to 21.95% and 18.07% respectively. Roy G. Niederhoffer’s Diversified Offshore Fund, a relatively rare short-term mean reversion player who does not respond to the same beta as more traditional momentum players, held his third place position but was down from 17.97% last week to 14.52% this week. Another non-trend follower, John Burbank’s Passport Special Opportunities fund, up 16% last week, held its number four position but is down to 14.49% this week.