Hedge Funds Face Another Challenging Month

Hedge funds experienced yet another tough month in May, with both Citco and PivotalPath reporting lackluster overall returns for the funds they oversee. Citco revealed that less than half of the funds it administers managed to generate positive returns last month, while PivotalPath had slightly better results, with just over half of the funds it tracks ending in the positive.

Citco’s administered hedge funds delivered an overall weighted-average return of a mere 0.4% for May, resulting in a year-to-date return of 6.02%. In comparison, PivotalPath’s Composite reported a 0.2% return for May, bringing its year-to-date performance to 2%.

While hedge funds faced difficulties, major stock market indices saw varying success. The S&P 500 rose by 43 basis points in May, and the Nasdaq experienced an impressive surge of 5.8% during the same period. Year to date, the S&P 500 boasts a remarkable 9.7% increase, while the Nasdaq has skyrocketed by an astounding 23.6%. On the other hand, the small-cap Russell 2000 index has faced consecutive monthly declines since January, resulting in a 66 basis point decrease through May. Similarly, the Dow Jones Industrial Average is down by 72 basis points year to date.

Among the hedge funds administered by Citco, larger managers outperformed their smaller counterparts, with the median return settling at -0.1%. However, only 48% of Citco-administered funds managed to generate positive returns in May, marking a significant drop from the 65% that were in the green the previous month. In contrast, PivotalPath reported a more positive outcome, as 55% of the funds it tracks experienced positive returns in May, with 67% remaining positive year to date.

The difference in returns between the 90th and 10th percentiles of Citco-administered funds, known as the rate-of-return spread, widened further in May. It expanded from 6.7% in April to 8.6% last month due to heightened volatility in returns. Conversely, PivotalPath observed a slight decline in the dispersion of returns among the hedge funds it tracks. The firm’s proprietary Dispersion Indicator reached a 46-month low in April and experienced a minor decrease in May, signaling a reduced disparity between fund performances.

Amidst these challenges, the average Dispersion Indicator remains below its historical average since January 2008, after a prolonged period of exceptionally high readings.