Hedge Funds – Trends over March and April 2020

Summary

• Since 1982, Renaissance Technologies or RenTech has been successfully generating decent funds.
• Medallion, RenTech’s flagship fund is said to have produced an annualised return of 39% (after fees) across a 3-decade duration until 2018.
• According to the latest filing with SEC for 4Q19 period, the firm sold large number of Tesla shares, which was the largest sell during the quarter.
• APSEC Funds Management since the beginning of the year to April, delivered a return of 17.2%.

Since market volatility has peaked over the past few months, there was a significant dislocation in markets. Hedge funds, which are deemed to thrive at a time when volatility is on a higher bound level, may have reaped benefits – but these benefits might have been limited to managers who positioned efficiently.

Renaissance Technologies

Renaissance is a quant-driven hedge fund that has generated decent returns across cycles. It was founded by James Simons and Howard Morgan in 1982. Also known as RenTech, it is believed to be the most successful hedge fund in the world.

The firm’s flagship fund Medallion is believed to have generated annualised return of 39% (after fees) over a 30-year period ended in 2018. Investment is undertaken through mathematical models and the firm employs people with non-financial background, specialising in statistics, mathematics, physics, computer science, etc.

As per media reports, Medallion delivered an after-fees return of 24% this calendar year to April 14 with almost 10% gain in March when markets had been bleeding severely. However, the fund is privy to some class of investors, which also includes employees. RenTech is an employee owned firm.

Based on market-mispricing and statistical models, RenTech looks for buying opportunities in the markets and hold on to investments for months to even seconds. Moreover, it is a high frequency trading firm, running on man-made codes that are implemented on computer systems to capitalise on the anomalies of markets.

Media has also noted that firm asked investors for more money during late March, indicating that firm’s systems were signalling money making prospects.

As per the latest filing with SEC for 4Q19, the firm sold large number of Tesla shares, which was the largest sell during the quarter. Notably, Tesla’s stock was on a decent run in March quarter and more than-doubled by mid-February compared to the price at the beginning of the year.

RenTech also sold stakes in Facebook, General Electric and BP. It also sold interests in Starbucks, General Electric, Amazon, eBay, Pfizer, and Norwegian Cruise. Among the buys, its largest buys was Bristol-Myers Squibb. Some of the other buys include Novo Nordisk A/S, Baidu ADR, Zoom Video Communications, and Allergan.

The firm also increased stake in gold miner Randgold Resources and Duke Energy, which is a utility firm. Coca-Cola, Costco, Walmart, Target, Kroger, Proctor & Gamble were also on the buy lists of the hedge fund.

The Atlantic Pacific Australian Equity Fund

APSEC Funds Management is the company that manages the Atlantic Pacific Australian Equity Fund (APAEF). Since the beginning of the year to April, APAEF has delivered a return of 17.2%. In March, when market volatility was at peak, it recorded a return of 17.19%. Such return come after a lacklustre 2019 when markets had one of the best years, and the fund could only deliver a return of 2.5%.

Even in 2018, the return of the fund was just 2.9%. Year 2014 has been the best year for the funds where its return was 22%. In 2015 and 2016, the returns generated by fund were around 10% and 2017 return was just 2%.

In its April report, it is reported that fund returned 23.5% over the past three months. Likewise, APAEF has delivered a return of 18.1% over the past one year. During April, the fund capitalised on volatile markets and increased stake in (ASX:EML) when it was trading near month’s lows.

The Manager also accumulated stake in (ASX:LYC). Also, the fund liquidated half of the positions in (ASX:MSB) at around $3.9 and is currently accumulating at lower levels. All positions were liquidated in (ASX:JHX) and (ASX:SCG).

Fund buys and short sells Australian listed securities and derivatives. Managers utilises Quadruple Alpha Investment Strategy, which seeks to maximise returns across market cycles while also lowering downside.

Taleb’ tips delivered great returns

Nassim Nicholas Taleb a renowned statistician had refrained from calling COVID-19 a black swan event as he reckons that pandemic was predictable. And, a black swan event is unpredictable and rare.

When the virus was largely contained in China, he had noted to plan for the containment as a virus like COVID-19 is nonlinear. In January, he and his co-authors had urged for a swift action by policymakers to contain the virus.

Universa Investments is a Miami-based hedge fund run by Mark Spitznagel, a former student of Mr Taleb at the New York University. Mr Taleb also advises Universa, and the hedge fund was in news in April after extremely high returns in March.

Media reports suggest that Universa’s tail risk fund delivered a return of around 3600% in March. And, year-to-date return of the fund was around 4140% by the end of March. The fund was able capitalise on the opportunities and its market positioning.