Apparently multistrategy funds are all the rage. There is even talk that these funds cannot take any more clients. And that there is a growing trend to return gains to customers as well. This has been going on for some time in the case of Citadel. More recently Point 72 was quoted as offering to return profits to clients. Now D.E. Shaw is looking to do the same. Partially due to good returns. Good returns are relative, of course. Last year U.S. Large-Cap Growth Equity funds gave returns near to 45%. So, how did D.E. Shaw’s Oculus Fund make a 36% return in 2024?
We had a look at a wide selection of Large Cap stocks to get an idea about returns on equities in 2024.
Apple grew by 31%
Nvidia grew by 167%
Microsoft grew by 13%
Alphabet grew by 40%
Amazon grew by 50%
Meta grew by 71%
Tesla grew by 66%
Walmart grew by 73%
Berkshire Hathaway grew by 21%
JP Morgan grew by 75%
Then there were companies involved in the AI space… Just consider TSMC which grew a staggering 105%.
Nobody should be surprised that Large Cap stocks gave such healthy returns. D.E. Shaw’s Oculus Fund could probably have made more than 36% considering the average performance of large cap stocks alone. However, this is not how a traditional hedge fund works. Oculus will have carried non-equity investments like fixed income, derivatives, or arbitrage. It is also going to be looked after by a particularly strong risk analyst who will not want the fund overly exposed to large cap equities.
That said, the risk analyst wasn’t too bad. Oculus outperformed similar multistrategy funds like Citadel, Millennium or others.
Where was the Downside in 2024?
According to Morningstar funds that struggled in 2024 were focused on Latin America or ESG-related investments. abrdn Latin American Equity fell almost 28% in 2024. Schroder Global Energy Transition fell over 26%. There were more cases, these are just some examples.
These returns were exacerbated by political turmoil in Brazil and continued challenges being faced in Argentina. Not to mention the change in political mood in the U.S. to banks being too ESG-friendly.
In other news Singapore-based hedge fund Kenrich Partners had a particularly bad year. Richard Toh, Chief Executive of the hedge fund wrote to his customers that “I have come to the realisation that I am not good at what I am doing.”
Toh follows a sleuth of active fund managers who have resigned from their investment roles in the recent past. Ray Dalio at Bridgewater or Cathie Wood at ARK Investments are examples of those who have changed their roles dramatically due to changing market reality.
Reinforcement learning, macro strategies, and multistrategies are all keywords that are on the lips of hedge fund managers today. Importantly, as opposed to individual funds available to everybody, hedge funds operate differently. Hedge fund managers typically resort to restricting new money and even return capital to avoid becoming too big. Size can be a challenge when dealing with emerging markets or certain asset classes.
How Has D.E. Shaw performed over the years?
When it comes to the Oculus Fund, Bloomberg has provided data about the returns.
25% in 2020, 15% in 2021, 20% in 2022, 8% in 2023, and 36% last year.
During this period the S&P 500 performed a bit differently.
16.5% in 2020, 19% in 2021, -23% in 2022, 22% in 2023, and 23% last year.
The two performances are not that far apart.
As the S&P 500 on average grows about 10% per annum, it’s fair to predict that the D.E. Shaw Oculus fund will be able to provide this type of return too. If not more.
If you want to be safe and not carry too much risk, then D.E. Shaw continues to be an attractive albeit unambitious option. Oculus is well diversified. It spreads your risk well. But, if like many of our readers, you have an unsatiable appetite for investing, then it may be better to stick with Large Cap, AI and Quantum-related stocks for now. There are risks with any investment, however with the Monetary Authority of Singapore forcing banks to be quantum resistant. With AI governance in the ascendancy. And with Mark Zuckerberg’s buddying up to Elon Musk and Trump, these suggestions may have some merit.
One thing is for sure, if you are looking at investing with a hedge fund, try to avoid active managers, Latin America or ESG for now. Just consider what happened in 2024. And, if you do plan on going with a hedge fund, consider the Sharpe ratio of their funds before putting pen to paper.
Author: Andy Samu
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organisations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
See Also:
QuantPedia the solution for Portfolio Managers | Disruption Banking
D.E. Shaw: $60 Billion Hedge Fund Set For Strong Returns In 2024 | Disruption Banking
How Reinforcement Learning can be Revolutionary for AI-driven Alpha Strategies | Disruption Banking
