Article published in Le Temps, January 27, 2025, in Lundi Finance, Special Alternative Investments
Alternative funds benefited from the divergent dynamics observed among different economic sectors last year. Hedge funds are making a comeback in 2025, given the risk that the technology sector may no longer drive stock markets upward as much.
The 2024 vintage was a great year for hedge funds. In particular, long/short equity strategies across all geographies, even in the United States and China, summarizes Cédric Dingens, from NS Partners. The HFRI Equity Hedge Index, which reflects this management style, thus indicates a performance of +12.3% over the past year. Broadly speaking, long/short equity managers bet on the rise of undervalued companies while wagering on the decline of stocks deemed overvalued.
“The overall volatility of equity markets remained contained, but significant divergences were observed at the sector and company level,” explains the alternative investment specialist.
Not just technology
The outperformance was generated thanks to technology stocks, but not exclusively.
“The largest sector allocations were industrial stocks, ahead of technology and financial stocks, which performed very well last year, particularly thanks to insurance,” states Cédric Dingens, who was interviewed upon his return from London, where he had discussions with fund managers. One last point on long/short equity: portfolios declined much less than the market in October or December, while still largely participating in market rallies.
Global macro strategies generated an average return of around 15%, but with greater dispersion among managers in terms of performance, which remained largely uncorrelated with the markets. This type of strategy relies on macroeconomic and political forecasts at the country level to invest in different asset classes (stocks, bonds, currencies, commodities, etc.). The HFRI Fund Weighted Composite Index, which reflects the performance of all 1,400 alternative funds, posted an average gain of 9.83% last year.
“The environment is very favorable to these strategies across most asset classes—currencies, commodities, slightly less for equities paradoxically, but especially for interest rates,” continues Cédric Dingens.
An example in October 2024, when markets questioned the possibility of a recession in the United States and anticipated six to seven Fed rate cuts: “These hedge funds did not believe it and took advantage of the situation.”
The “Trump trade”
Another winning bet for global macro strategies: the “Trump trade” in the final part of 2024, when many observers did not rule out a Kamala Harris victory. “These funds positioned for a Trump victory by going long on the dollar, technology, and interest rates, as the new U.S. president’s promises were expected to be inflationary—particularly the introduction of high tariffs,” explains Dingens. Earlier in the year, many hedge funds successfully capitalized on rising copper prices, taking profits before prices fell in May, even though energy and commodities were challenging markets throughout the year.
Hedge funds also generated profits in equities, particularly through the AI theme and large U.S. capitalizations. Japan and gold were also strong investment themes. Finally, multi-strategy managers on major platforms finished the year well, with a favorable December despite a market correction, adds our source.
Read also: Pierre de Saab discusses 2025 volatility spikes with Bloomberg |
“2024 was a good year overall, even though a lot of uncertainty was observed in the market—until Donald Trump’s election reassured investors,” says John Argi, from Union Bancaire Privée (UBP). In the fourth quarter, hedge fund performance remained strong, despite challenges in October and December due to profit-taking in equity markets, explains the co-head of alternative investment solutions at the Geneva-based private bank. “Uncertainty surrounding the U.S. election was lifted, and markets reacted positively to the new president. He has indeed announced his intention to surround himself with competent figures, with the goal of ending wars and, more broadly, advancing the U.S. economy,” he summarizes.
Looking ahead to 2025
The strong 2024 performance translates into a positive outlook for 2025, says Pierre de Saab, from Dominicé Asset Management in Geneva, who sees renewed demand for alternative funds this year. “Hedge funds are seen as a way to participate in market upside while mitigating downside risk—something highly valued in the current environment,” explains the head of alternative investments at the asset management firm, which oversees $1.7 billion in assets.
Stocks are expensive, especially in the United States, and they constitute a significant share of many portfolios as Trump’s new administration policies take shape, explains Pierre de Saab: “Investor sentiment is shifting—not only to bet on rising stock prices but also to limit losses in case of a downturn.”
It is again relevant to hold other strategies than just stocks and bonds, continues John Argi, from UBP: “The current environment is very interesting because, given the market’s polarization, last year’s performance was remarkable, with +25% for the S&P 500 Total Return, but more than half of it came from the Magnificent 7.” These seven American tech giants—Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, and Tesla—held a significant weight in the indices, averaging 30% in 2024, with, for example, Nvidia contributing 5.4% to the S&P 500 Index.
