Managers are Underweight Small- and Mid-Cap Stocks
NEW YORK, July 16, 2024 — Unlimited, an investment firm and ETF sponsor that uses proprietary technology to provide low-cost alternative strategies to a variety of investors, published its Q2 2024 Hedge Fund Barometer today, showing that equity long/short strategies outperformed others with average gains of 2.7% for the quarter and global macro managers notably underperformed. Long/short equity funds have increasingly rotated into large tech companies, which likely provided support for this much-discussed portion of the market.
Unlimited’s Barometer uses powerful machine learning technology and multiple data sources to track performance metrics for the major hedge fund strategies. It also provides a near real-time view into how hedge funds are positioned across major asset classes, industry sectors and geographies.
Based on Unlimited’s data, equity long/short managers held normal levels of overall equity exposure during the quarter, but have increasingly taken larger positions in large-cap growth stocks and cut exposure to small- and mid-caps in Q2 2024. This marks a reversal in their approach from 2022 and 2023, when managers were overweight smaller stocks with lower valuations.
“Market and economic trends oscillated quickly in the second quarter and global macro funds on average had a hard time finding returns while long/short managers benefitted from their exposure to the big tech names,” said Bob Elliott, CEO and CIO of Unlimited. “In the commodities space, funds are heavily short energy, but long gold, metals and agricultural commodities. This creates the possibility for a short squeeze in energy later this year if the market turns bullish.”
Unlimited Hedge Fund Barometer Q2 2024 Findings
According to Unlimited’s latest Barometer, hedge fund performance was modestly positive across most strategies in Q2 2024. To read the full report, click here. Other highlights include:
- Average gross returns across all strategies were just below +1.5%
- The best performing fund style was long/short equity at +2.7%
- The worst performing fund style was global macro at -0.1%
As we enter the second half of 2024, Unlimited’s Barometer also shows hedge funds:
- Held widely divergent views across commodity markets: long agricultural commodities, gold, and metals, while near max short energy.
- Added to their bullish U.S. dollar position, reflecting the significant relative strength of the U.S. economy, tighter relative Fed policy, and strong asset performance.
- Remained cautious on U.S. bonds, reflecting the continued low term premium, significant ongoing supply, tight monetary policy and satisfactory growth conditions.
- Pulled back on their previous overweight positions in Japanese stocks as it became increasingly clear domestic growth conditions have softened and the BoJ is considering tightening (and more FX intervention) ahead.
- Fixed income managers continued to hold near record exposure to corporate spreads to generate modest returns despite secularly low spread levels. They appear to be holding near their highest level of credit risk in history while spread levels are near all-time lows. With spreads so tight, these managers may have difficulty driving returns even with such high leverage. Current positioning suggests these managers are unlikely to have capacity to squeeze spreads lower.
Click here to view a video on how Unlimited’s technology works.
About Unlimited
Founded in 2022 by Bob Elliott, Bruce McNevin and Matt Salzberg, Unlimited is an investment firm that uses proprietary technology to create broadly accessible, low-cost index tracking ETFs for 2 & 20-style alternative investments like hedge funds. The firm currently manages the Unlimited HFND Multi-Strategy Return Tracker ETF (NYSE: “HFND”), which aims to track the gross-of-fees returns of the hedge fund industry. Mr. Elliott has built innovative hedge fund strategies for more than two decades, including at Bridgewater Associates, the world’s largest hedge fund. Mr. McNevin is a Professor of Economics at New York University and has held various data science positions at hedge funds Clinton Group and Midway Group, along with positions at Bank of America and BlackRock. Mr. Salzberg serves as a Managing Partner at Material and is a Co-Founder and Chairman of various companies, including Unlimited. Learn
more at unlimitedfunds.com.
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