By Nell Mackenzie
LONDON (Reuters) - Wild market swings this year caught out many global hedge funds and those trading on macro economic events felt the pain of an unexpected rebound in government bonds, while other strategies benefited from exposure to U.S. tech stocks, bank data shows.
The following charts highlight the highs and lows for the sector and how their performance contrasts with previous years, as high inflation, a continuation of rate hikes, and a bank crisis, whipsawed markets this year.
The data is sourced from prime brokerage notes throughout the year. Prime brokerages are a unit of banks that provide services to hedge funds, and shed light on sector trends and flows.
1/ EVENTS THAT IMPACTED HEDGE FUNDS IN 2023:
2/ CROWDED TRADES WERE THE BEST (NYSE:BEST) TRADE:
Crowded trades, particularly in North America, made the most profit since 2020, the prime brokerage data suggests.
Hedge fund crowding hit its highest on record, Goldman Sachs said last month, as asset managers bet on the "Magnificent 7" tech stocks that have inflated portfolio returns this year.
Megacap growth and technology stocks accounted for 13% of the aggregate hedge fund long portfolio, twice their weight at the start of 2023, the bank said.
Companies including Microsoft (NASDAQ:MSFT) and Amazon.com (NASDAQ:AMZN) are popular long positions, meaning investors are betting on a rally in their prices.
This helped to drive outsized returns for the funds.
3/ PAID TO BE LONG:
It also paid to be long this year, with stock bets that equities would rise. Short positions detracted from portfolio performance, according to Morgan Stanley.
4/ WRONG IDEAS
At the beginning of last year, investors expected multi-strategy hedge funds would end 2023 as the most profitable hedge fund strategy, but that was not the case. Data from BNP from November showed they returned 5% on average, behind quantitative strategies.
Nearly half of the investors surveyed by BNP Paribas (OTC:BNPQY) in October said they planned to move money to a different kind of hedge fund strategy that would outperform in a higher rate environment.
The strategies of choice included systematically traded commodity trading advisers, corporate bond trading and actively managed macroeconomic portfolio trading.