This brief article examines the five best performing Hedge Funds and the five best performing Mutual Funds from April 2020 to December 2020. The sole focus was placed on hedge funds and mutual funds that have AUM > USD100m. We found that the ten best 2020 funds were all invested in either tech, growth stocks (not new) or small caps. In addition, we found that none of them made use of a leverage (using beta to the S&P500 as a proxy) higher than 40%.
The financial contraction caused by the shock of the COVID-19 pandemic affected the entire global economy, severely disrupting international supply chains, with the traditional retail and service sectors effectively having to deal with a total shutdown due to the prevailing unpredictability of governmental lockdown decrees.
Subsequently, there were dramatic losses in most sectors, quite notably in the equity market. However, the fund managers in the equity market that champion more reactive strategies were still able to make substantial profits by carefully monitoring market fluctuations and timing their trades opportunely throughout the numerous periods of extreme volatility that presented themselves across 2020.
Consequently, from April 2020 until the end of the year, the equity market actually went against expectation and grew substantially to 2020 end in an even stronger position, recovering from the losses incurred prior to that period.
| Strategy | Cumulative Return (Apr-Dec 2020) | Annualized Volatility | Annual Sharpe Ratio (Rf= 0.25%) | Max Drawdown | Fund AUM (USD m) | |
|---|---|---|---|---|---|---|
| CIF Cayman Fund SPC - Chaos Alpha Fund SP - USD | Tech Growth Asia | 419.16% | 48.83% | 1.99 | -14.02% | 227 |
| Delphi Global | Bottom-Up | 279.72% | 19.23% | 0.98 | -45.84% | 184 |
| Silver 8 Partners LP - USD 1 | Technology Fintech | 247.63% | 59.99% | 1.48 | -67.00% | 214 |
| Seven Voyagers Capital Ltd | Long Short Equities | 207.54% | 29.99% | 0.68 | -47.07% | 135 |
| JW Opportunities Fund LLC | Long Short Equities | 195.68% | 34.01% | 0.76 | -52.09% | 356 |
Source: Eurekahedge, Alternativesoft
The figures above show that from April 2020 to December 2020, CIF Cayman Fund SPC, was the best performer in terms of cumulative returns, with 419.16%.
A regression analysis was performed between these five hedge funds and the S&P500 which showed that their betas were all between 0.7 and 1.2, so not really taking advantage of leverage at all. This was then repeated but against the Russell 2000 Growth, where even lower betas 1 were found than against the S&P500. Consequently, no statistical bias towards growth stocks higher than the S&P500 were found.
For those who think that it might be the case that these 10 funds were lucky in 2020, the 2019 returns for nine of them were between 6.63% and 40.34%, with only JW Opportunities Fund LLC performing negatively (-21.54%).
| Strategy | Cumulative Return Apr-Dec 2020 | Annualized Volatility | Annual Sharpe Ratio (Rf= 0.25%) | Max Drawdown | Fund AUM (USD m) | |
|---|---|---|---|---|---|---|
| Zevenbergen Genea Growth | Technology Sector Equity | 167.44% | 30.42% | 0.55 | -86.67% | 583 |
| Morgan Stanley Inception | US Equity Small Cap | 162.57% | 25.80% | 0.56 | -56.11% | 1,157 |
| Morgan Stanley Discovery | US Equity Mid Cap | 155.02% | 20.84% | 0.71 | -56.22% | 5,580 |
| Baillie Gifford US Equity Growth | US Equity Large Cap Growth | 146.42% | 17.33% | 0.76 | -47.56% | 18,473 |
| Driehaus Micro Cap Growth | US Equity Small Cap | 145.88% | 30.51% | 0.74 | -55.08% | 2,383 |
Source: Eurekahedge, Alternativesoft
Zevenbergen Genea Growth was the best performer amongst the mutual funds with a cumulative return of 167.44%. The fact that this technology sector equity strategy fund was the best performer amongst the mutual funds is suggestive of the general resilience shown by tech stocks throughout the pandemic. These five mutual funds have a beta to the S&P500 between 1.2 and 1.4.
From the data presented, the five of the hedge funds outperformed the five mutual funds during Apr2020-Dec2020. None of the funds in either the five best performing hedge funds or the five best performing mutual funds had more than 40% leverage (using beta to the S&P500 as a proxy for added simplicity), with the highest leverage being a mutual fund.
N.B. This article does not constitute any professional investment advice or recommendations to buy, sell, or hold any investments or investment products of any kind, and should be treated as more of an illustrative piece for educational purposes.
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1 We use last five years monthly returns to compute the betas
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