What’s going on here?
Multi-strategy hedge funds posted solid gains in 2024, with investment picks that went beyond the trusty old stock indexes.
What does this mean?
Multi-strategy hedge funds operate like a team of specialized units, each focused on a specific approach – like profiting from big mergers and acquisitions, using algorithms to trade commodities, or taking advantage of inefficiencies in bond markets. By spreading their bets across several tactics, these funds can manage their risks and perform well no matter what the markets are doing. And that reputation for steady returns is what makes them so popular among investors. In 2024, the funds delivered: D.E. Shaw gained 18%, behemoths Millennium and Citadel were up 15%, and most others notched double-digit returns. Not too shabby.
Why should I care?
For markets: A risk-adjusted view.
Sure, those returns fell short of the S&P 500’s 23% gain in 2024. But it’s worth remembering that multi-strategy hedge funds tend to be much less risky, delivering strong returns in many different environments – even when stocks stumble. If you factor in their lower risk – which you should always do when comparing investments – they performed exceptionally well last year.
The bigger picture: Resilience over reliance.
When stocks rally hard like they did in 2024, a simple buy-and-hold strategy can seem unbeatable. But shares don’t always go up: sharp crashes happen and their recoveries can take a decade or more. So it’s worth considering strategies that don’t rely on constant upward movement. Even if you don’t have the kind of wealth that qualifies you to invest in the world’s big hedge funds, you can take a page from their books. A diversified portfolio or an adaptive strategy could do the trick.
