Hedge funds focused on equities wrapped June having pushed their year-to-date returns into double digits, according to a Goldman Sachs client note. The note said stockpickers delivered a 4% return in June and that funds using fundamental analysis recorded a particularly strong quarter.
Fundamental managers outperform
Those hedge funds relying on fundamental research into company finances achieved an 18.4% return for the quarter, the strongest quarterly performance on Goldman Sachs' records. Their year-to-date return stood marginally lower at 17.4%. Goldman attributed the success to larger directional wagers, overweight positions in healthcare, and participating in trades that already had momentum.
Despite the strong quarterly showing, the note highlighted areas that generated losses in June. Volatile market conditions, active trading in an accelerating South Korean equity market, and short positions that expected asset prices to decline all exerted pressure on returns.
Big tech and chip indexes diverge
The second quarter was the best on record for the U.S. SOX semiconductor index, yet June proved difficult for the so-called Magnificent Seven. The Roundhill Magnificent Seven ETF fell 9% in June, marking its largest monthly decline in more than a year. At the same time, oil prices eased back to levels seen before the Iran conflict spike, and market pricing implied at least one Federal Reserve rate increase by year-end, even though the most recent U.S. jobs report reduced some of the odds traders had attached to additional hikes.
Systematic strategies see mixed outcomes
Managers using systematic models that evaluate market dynamics for trade selection posted a modest 1.1% gain in June after experiencing losses that crystallized late in the month. For the year to date, that systematic cohort returned 11.3%, according to Goldman Sachs.
A separate note from Winton, a systematic hedge fund with about $18 billion in assets that monitors competitor performance, outlined further detail on where systematic approaches struggled. Volatility among the largest U.S. companies and some Chinese firms weighed on results. Additionally, short positioning in fixed income - notably in long-dated U.S. Treasuries - detracted from performance.
Currency and commodity trends
Trend-following managers and commodity trading advisors that trade across multiple asset classes were able to generate profits in the Canadian dollar and Japanese yen. However, losses in the Australian dollar, the pound sterling, and the Norwegian krone were larger and more damaging, offsetting gains in those currencies.
Winton's note also observed that many systematic strategies impose minimum holding periods for trades. Faster, higher-frequency strategies were generally better positioned to navigate the choppier market conditions in June, while longer-horizon systematic approaches found more difficulty closing out losing positions.
Contextual note
The combined picture from the Goldman Sachs and Winton notes is one of contrasting performance across hedge fund styles. Fundamental stockpickers and larger thematic bets in areas like healthcare produced pronounced gains, while systematic and macro-linked trades were exposed to late-month volatility, adverse currency moves, and declines in oil that eroded some profits.