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FoHF Returns vs Hedge Funds during Covid-19

• Oct 2020
• Fund of Hedge Funds, Hedge Funds, Covid 19
• By Laurent Favre

Some investment funds have done better than others during Covid-19. From data aggregated using AlternativeSoft’s investment platform, we can see that easily the best performing investments in the period Feb 2020 to Aug 2020 were Growth Mutual Funds. In second place came Equity Long Short Hedge Funds¹, closely followed by Fund of Hedge Funds (FoHF) investments with Value Mutual Funds bringing up the rear.

To arrive at this conclusion, our platform used reliable data from Eurekahedge, Barclayhedge, HFR and Morningstar databases, with funds in USD currency only ².

As Table 1 shows, Equity Long Short Hedge Funds outperformed Fund of Hedge Funds by 3% only and underperformed Growth Mutual Funds by 10%. These numbers are averaged among thousands of funds and are not excessive when you understand that Tesla does +10% and -10% in a single day. Equity Long Short Hedge Funds aren’t that far away from the S&P500 with a 4% underperformance.

But it’s when you look at funds selection and returns dispersion among funds, that things really become interesting. The top 50 Equity Long Short Hedge Funds generated 57% during Feb 2020 – Aug 2020. The top 50 Growth Mutual Funds generated 69% during that period. The top 50 FoHF generated 13% only during Feb 2020 – Aug 2020. This highlights the importance of selecting the right Equity Long Short Hedge Funds and not investing in FoHF. Of course, selecting the correct Growth Mutual Funds needs expertise that can only be gained by using a high performance software platform, such as AlternativeSoft, along with an experienced fund analyst.

Table 1 Funds vs indices returns during Feb 2020 – Aug 2020 ³

	Feb 2020 - Aug 2020 return (USD)	Remarks
Growth Mutual Funds	15.89%	Fund AUM (m) >100m, 2,885 funds 4
Equity Long Short Hedge Funds	5.12%	Fund AUM (m) >100m, 1,053 funds
Fund of Hedge Funds	1.99%	Fund AUM (m) >100m, 450 funds
Value Mutual Funds	-6.68%	Fund AUM (m) >100m, 2,597 funds 5
S&P500	9.79%	Shown as a reference

Source: AlternativeSoft, Eurekahedge, Barclayhedge, HFR, Morningstar

Put the power of data to work in your investment decision-making.

What we can conclude from all of this is that investing in Fund of Hedge Funds during Covid-19 didn’t secure the best returns. A skilled fund analyst with access to a reliable, aggregated platform, such as AlternativeSoft software, would have invested in Equity Long/Short Hedge funds, as well as selected Growth Mutual Funds and delivered a much better performance on overall investment.

¹ This is the hedge fund strategy which performed the best during Feb2020-Aug2020.

² We could have used value index, growth index, HFRI FoHF index, HFRI equity long/short index, but this would have been a bad choice because funds managers dramatically underperformed their respective indices during Feb 2020 – Aug 2020. See our September article on Value and Growth funds managers’ underperformance.

³ When a fund has no returns in Jul or Aug, we insert 0%. Deleting the fund would create a survivorship bias.

⁴ Five growth funds generated > 80% during that period, I mention it to stress that it is possible to generate high returns during up and down even being a long only manager.

⁵ Six value funds did lower than -80% during the period. This highlights the damage experienced by some value funds managers during this period.

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