Goldman: “Hedge Fund Returns And Leverage Have Entered A Vicious Downward Cycle”

Wednesday, November 21, 2018
By Paul Martin

by Tyler Durden
Wed, 11/21/2018

The last time we looked Goldman Sachs Hedge Fund VIP index one month ago, it confirmed what we already knew, namely that it was in freefall as the pain for hedge funds refused to stop. Now, in its latest quarterly hedge fund tracker, Goldman digs into the just released barrage of 13F filings, analyzing the holdings of 823 hedge funds with $2.2 trillion of gross equity positions at the start of 4Q 2018, and finds even more bad news, namely that “hedge fund returns, portfolio leverage, and the performance of popular stocks have entered a vicious downward cycle.”

As one would expect, Goldman strategist Ben Snider being by looking at the bank’s proprietary hedge fund performance index, and finds that after outperforming in 1H 2018, the Hedge Fund VIP basket of the most popular long positions has lagged the S&P 500 by 725 bp since mid-June (-9% vs. -2%) alongside a downturn in growth and momentum stocks and rise in S&P 500 volatility.

As a result of the adverse combination of headwinds from alpha and beta, the average equity hedge fund YTD return has tumbled to -4%, returning +2% through May before declining 5% in recent months, including a -4% return in October; the recent sharp declines have forced funds to cut gross and net exposures even more, to the lowest levels since 1H 2017, weighing further on the most popular positions.

The Rest…HERE

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