First Losses Since 2016

In recent years, a key bright light for the hedge-fund industry has dimmed as stocks of technology and other fast-growing companies have sold off, resulting in substantial losses for some big investors.

  • According to portfolio managers and their clients, hedge funds investing in growth stocks had their worst year in a long time in 2021. Many funds suffered significant losses at the end of the year, and the rout has continued into this week
  • Andreas Halvorsen's Viking Global Investors LP, whose $22 billion flagship hedge fund, Viking Global Equities, was down 4.5% in its worst-ever yearly loss, was among those feeling the pinch
  • Tiger Global Management's hedge fund, which had around $25 billion under management at the start of 2021, lost 7.4% in its first losing year since 2016

Lower Rates, More Risk Raking

Given their recent success, growth and technology-oriented strategies make for one of the greatest pools of money in the more than $4 trillion hedge-fund sector. Low interest rates benefit many of the equities they favour as investors seek higher returns by venturing further out on the risk spectrum — and into assets like tech companies that promise huge earnings improvements.

  • Those companies become vulnerable during periods of tightening as investors migrate to sectors like financials, which have historically profited from higher rates
  • Investors attribute the latest sell-off to Jerome Powell's re-nomination as Federal Reserve chairman in November and expectations of a more hawkish central bank

BENCHMARK'S TAKE

  • The rally in growth stocks that lasted until the first half of 2021 had a boost from retail investors, hedge funds and some well marketed actively managed ETFs
  • Yet, with rising rates and uncertainty around supply chains, we believe that a rally in growth stocks isn't poised to take place in the first half of 2022 as investors focus their bets on more profitable businesses
  • We also believe that investors seeking to get exposure to growth stocks shouldn't underestimate how quickly hot money from hedge funds and other forms of actively manages funds can move

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Giorgio Trovato on Unsplash.