Hedge funds in November suffered their worse monthly decline since the start of the pandemic in March 2020.
Hedge funds lost 1.7 percent last month, with equity hedge funds leading the declines as they were caught off guard by Omicron, with HFRI’s equity hedge index falling 2.7 percent.
Macro funds were also battered by volatile bond markets with a 2.5 percent decline, the worse since October 2018, according to preliminary figures from the Bloomberg Hedge Fund Indices.
The HFRI Fund Weighted Composite Index, which aggregates the performance of funds of all sizes, fell 2.2 percent. The index has not seen a decline of that magnitude since March 2020 when it saw a 9.1 percent drop.
The HFRI index increased by 1.3 percent in October before slowly dipping in November.
Financial markets plummeted in the last week of November, with U.S. stocks losing nearly 4 percent in the last five trading days of the month, after news of Omicron hit headlines.
Currency and bond market volatility also shook to the news.
“November was an interesting month. It marked a reversal of October trends,” said Kenneth Heinz, HFR president, at a Dec. 8 press conference. “In the final days of the month, you saw a reversal of the post-quarantine, post-pandemic, and inflation-positive trades that have [defined] the last few months.”
He added that the losses were “primarily attributable to a steep, late-month global equity market selloff driven by investor panic related to the spread of the Omicron coronavirus variant. In addition to this, hedge fund performance was also impacted by evolving expectations for higher inflation and interest rates in the US sooner than had been expected by many investors.”
Heinz said, “On the day after Thanksgiving and the final day of the month, you ended up seeing sharp declines,” adding that the trends had already begun to correct themselves in early December.
“People became very concerned with the spread of the variant, and there was a messy panic across a number of asset classes that undid a lot of trades,” Heinz said. “A lot of those trends have already corrected themselves in the early part of December. From a financial market perspective, we had one more decline based on the variant, but you’ve generally seen a strong start to December reversing a lot of those trends.”
Heinz believes that the initial panic caused by the emergence of the new variant was merely a setback and expects a strong end to the year.
Bloomberg reported that hedge funds were still up by 8.7 percent this year through November despite the selloff.