Hedge Funds Shine, Though Not As Brightly As Predicted

Hedge funds remain in positive-gain territory through May, as reported by HFR. Aggregate net gains for the year are unimpressive, standing at 0.39 percent, just one basis point above April’s 0.38 percent gain. This fact highlights the quagmire the hedge fund industry is locked into at this point in time.

Changes Are Afoot

Market volatility has been on the increase since the Dow fell from its January 26, 2018 high of 26,616.71. This volatility has been at the core of the hedge fund industry’s return to investor favor. As we know, hedge funds perform at their best in a volatile market. Volatile markets are the necessity that breeds hedge fund innovation.

One example of hedge fund innovation is apparent in their strong preference for so-called growth stock. While it may be seen as common knowledge that growth stocks will outpace benchmarks, hedge funds understand that this is only true in certain economic environments, such as the one we find ourselves in now, an economy that is healthy and enjoying modest growth.

Such an environment, while great for hedge funds, is anathema to value investing because the valuation dispersion in the current market is a precursor for weak returns in value stocks. As stocks move up or down independently of one another, actionable trades arise for stock pickers.

Hedge funds are once again venturing into the energy sector. Oil found its bottom mid-2017 and prices since then have been trending upward. As a result, hedge funds took an overweight position in energy through the first quarter of 2018.

These, and other factors, are working in concert to make the hedge fund industry a formidable force for investors once again.

Investor Confidence

Early in 2018, investors anticipated hedge fund 2018 returns to be north of 7.5 percent. While this is a goal that is unlikely to materialize, investor confidence in hedge funds is unabated. Hedge fund starts are outpacing closures and assets under management are on the rise.

While gains are not as high as anticipated, hedge funds continue to outperform the broader markets and until we see the DOW above 26,600, this level of hedge fund performance is likely to persist.

What about Hedge Fund Jobs?

Despite low rates of return, the industry is performing well in comparison to other investor options. As stated, this has resulted in a growth in assets under management as well as growth in the number of hedge funds.

Growth such as this bodes well for job opportunities in the hedge fund industry. Clearly. Opportunities are greatest for experienced stock-pickers and those with energy sector expertise. In short, the planets are aligned for those with aspirations to become a hedge fund professional.

Rest assured, hedge funds will not be content to simply beat the market. Now that their stock-picking bona fides have been confirmed, innovators in the industry will be striving to exceed the next bar. Anyone with the talent and experience to help make that happen will find countless hedge funds holding out open arms.

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