How did the fund market perform in 2021?
February 16, 2022
The average return for The Portfolio Platform traders has now officially been released, and it was a whopping 61.8%.
Is this good? No, it’s incredible.
If you aren’t impressed yet, let’s have a look at how some of the big names in the industry have fared over the last 12 months.
Stocks had what can only be described as ‘a bumper year’. YET, recent figures show that just 1 in 4, active fund managers managed to beat the benchmark (S&P500).
In a sign of continued disappointment with the inconsistent performance of stock-pickers, outflows mounted last year, extending an exodus that stretches back to 2008. Withdrawals from actively managed US domestic equity funds reached $392.7bn in 2021, according to preliminary data from the Investment Company Institute.
At the same time, investors continued to replace active managers with passively managed exchange traded funds, which track benchmarks such as the S&P 500 and the technology-heavy Nasdaq Composite.
In short, ETF trackers have outperformed most fund managers. These funds simply track global equity indices in the same way as the trackers do on The Portfolio Platform. However, the best performing institutional funds in the market, don’t even make it halfway up the leader board on TPP.
The Platform trackers use derivatives to link up to the success of the entire index, rather than building a basket of stocks. This strategy is available for £50 per month, regardless of how much capital you wish to invest. It couldn’t be simpler.
So, with regards to tracking markets, active fund managers would be last, passive ETF trackers have fared better, but the Index trackers on The Portfolio Platform have easily surpassed the other two with the leveraged FTSE tracker making an annual return of 40.9% in 2021.
Big rallies in US tech behemoths and a series of painful market jolts have disrupted many hedge funds’ attempts to lure back investors who have deserted the sector in recent years.
Hedge funds gained 8.7 per cent on average in 2021, according to data provider HFR. That marks their third consecutive year of gains, but trails by some distance the US S&P 500 index’s 24 per cent total return over that same period.
Managers have lagged behind the US equities index benchmark because they tend to hold relatively small positions in tech giants such as Apple, Google parent Alphabet and Tesla, heavyweights in the S&P 500 that have rallied strongly in 2021.
Hedge funds have also found it difficult to make money as some bets have been disrupted by often-hostile retail investors. Inflows into hedge funds have, in turn, proved meagre with performance concerns adding to investor questions about returns and fees.
Patrick Ghali, managing partner at Sussex Partners, which advises clients on hedge fund investments, said there had been a “huge dispersion” in hedge fund performance in 2021. A fund betting on a company’s falling share price might correctly predict a poor set of earnings but then “you might get your face ripped off . . . if retail traders come into the stock”, added Ghali.
Hedge funds have suffered a slow exodus of clients in recent years, with investors more often drawn to the higher returns supposedly on offer in private equity and private debt funds.
However, 2020 marked a rare banner year for the sector. Funds largely survived the market chaos early in the year when the pandemic began to hit markets and went on to post an average gain of 11.8 per cent, widely seen as a strong result in a difficult environment.
It's probably worth pointing out at this point that The Portfolio Platform’s average return from traders in 2020 was 58.8%. Volatile markets can often lead to increased earnings, but it does also provide an easy excuse for those who underperform.
This mediocre gain from hedge funds raised hopes that investors, who have been growing concerned about high valuations in public and private markets, would flood back in. But while investors have started to come back, the sums committed so far are relatively modest, and 2021’s returns have not helped.
Investors put a net $24bn into the $4tn hedge fund industry in the first nine months of 2021, according to HFR. That compares with a total of more than $110bn of outflows over the past three years.
Calpers, the $500bn public pension plan, recently told the Financial Times it had no plans to move back into hedge funds after selling out in 2014, citing “problematic” fees. One big concern is the sector’s lack of so-called “alpha” — industry jargon for performance due to a manager’s clever trades rather than overall market moves.
This well-touted ability to pick out the best securities to buy or bet against is the sector’s strongest selling point, but as a strategy it has fared poorly compared with simply buying a cheap index-tracking fund.
At TPP we have continuously proven that buying a tracker would have fared much better over time than attempting to pick stocks, or even investing in some of the world’s most successful hedge funds.
So, what is it that a hedge fund can actually offer?
Hedge fund managers argue their portfolios are not designed to match an index but rather to do well in all market conditions, but the size of the underperformance last year has nevertheless raised some concerns.
Goldman Sachs analysts noted that while hedge funds did not necessarily aim to beat the S&P 500, last year’s returns were also “weak on an absolute basis”. Hedge fund trades have been hit by a series of market jolts, including the GameStop frenzy, sharp moves in bond yields, and a clampdown on China’s education industry.
Managers have also complained that stocks have failed to react to earnings news in the way they have in previous years. “Alpha [was] terrible,” said Salvatore Cordaro, CEO of Investcorp-Tages, although he noted that rising markets had “compensated a bit”.
The current trading environment is “extremely treacherous”, wrote Paul Singer of Elliott Management in a letter to investors, adding that “the most successful ‘strategy’” was to buy “almost anything” using lots of borrowing and follow the latest trends.
How have the Big Hedge Funds done vs The Portfolio Platform’s average trader returns of 61%?
Chase Coleman, a ‘Tiger cub’ who previously worked at Julian Robertson’s Tiger Management, gained just 4 per cent in 2021, after losing about 8 per cent in November.
Tiger Global is one of the most successful hedge funds ever. A low volatility version of Bridgewater’s Pure Alpha lost 3.8 per cent in November, although after gains last month it was up 3.2 per cent overall in 2021.
Ross Turner’s Pelham Long/Short fund was down about 7% last year.
Melvin Capital, hit during the GameStop frenzy, was down about 40%.
Leda Braga’s Systematic BlueTrend made 1.3% in 2021.
Rokos Capital, one of the world’s biggest macro funds, lost 25%.
Did anyone else make money?
Some funds prospered. Multi-manager fund Citadel gained 24.3% to late December, while rival Millennium was up 12.2% to the end of November.
Daniel Loeb’s Third Point gained 23%, helped by a punchy bet on alternative intelligence lending platform Upstart Holdings and other positions.
London-based quant group Qube Research & Technologies gained about 20% last yearand has doubled in size during the pandemic to about $5bn.
“Good managers have done well, but there have been many landmines along the way,” said Tiger Williams, founder of Williams Trading.
Sadly, although also inevitably, some stockpickers have thrown in the towel. Intrinsic Value Investors, a $1.3bn long-only company, told clients in the autumn it would return their money. Founding partner Adriaan de Mol van Otterloo told the Financial Times that “valuations are not attractive to make new investments”.
Hedge fund DSAM is also returning money to clients. The emergence of the Omicron coronavirus strain proved yet another obstacle that not all traders knew how to deal with.
Finally, in the fintech world eToro's most followed trader Jeppe Kirke Bonde recently announced he was positive by 16% in 2021. Although this is reasonable, it has to be noted that the average equity market generated 18% last year.
Some funds made reasonable returns. Equities did well but many hedge funds were too busy shorting stocks to make any money out of the rally.
There is no denying it though, The Portfolio Platform outperformed by some margin. So many funds lost money, yet every trader on TPP made money. One or two only made single digit returns, but the rest all performed fantastically well, with one even making triple digit returns.
The overall AVERAGE was 61.8%, and that really is remarkable.
Any investor can link their account to as many of these traders as they like. Modern software means the everyday investor now has access to professional traders, and not just any traders, but traders with experience, and the performance to back it up.
If you would like to know more, please contact us and we’d be only too happy to help.
“TPP might just be about to revolutionise investment for the retail market.”
- London Stock Exchange 2020