It’s well known by now that 2014 was a pitiful year for many hedge funds.
The average hedge fund was up just 2.48 percent, according to Atlanta-based data tracker eVestment, and 3.6 percent according to Chicago-based Hedge Fund Research’s HFR Weighted Composite Index.
What’s more, many well-known managers lost money in various funds last year, including John Paulson of Paulson & Co., Leon Cooperman of Omega Advisors and Robert Citrone of Discovery Capital Management, to name just three. And although most hedge funds don’t want to be, and in some cases should not be, compared with the S&P 500 stock index, it is still a little embarrassing that the average hedge fund came up way short of the 13.7 percent gain posted by the widely-followed benchmark.
That said, the average hedge fund seemed to be net long just a tad above 50 percent, as we have previously reported. This means they should have captured a little more than 50 percent of the market’s upside — but they didn’t, due to their short positions and other investments that didn’t pan out as hoped.
However, two hedge funds that did beat their peers were actually net short for all or a big portion of last year. Russell Clark’s Horseman Global Fund, managed by London-based Horseman Capital Management, finished the year up 12.7 percent after gaining about 2.7 percent in December. Also in London, Crispin Odey’s Odey European was up 5.5 percent last year after staging a spectacular 11.7 percent gain in December after rising more than 5 percent in November. The fund is operated by Odey’s firm, Odey Asset Management.
We have reported several times that Horseman has been net short for the past few years. Clark has had a large wager on interest rates continuing to fall, which some saw as a flawed contrarian long bet. In fact, about 60 percent of Horseman’s assets were invested in bonds in late 2014.
A big portion of that 60 percent was in 30-year U.S. Treasuries, a position Clark established at the beginning of the year and aggressively built up as the year progressed. Sure enough, Clark says last year he made almost all of his money in long bonds as interest rates fell, confounding the so-called bond experts.
Clark’s long equity and short equity books did not do much last year, however. Entering 2015, Clark was still net short equities and long bonds. His fund’s net short position was roughly 50 percent.
As for Odey, earlier last year the hedge fund manager turned slightly net short in his flagship equity hedge fund after maintaining net exposure to the markets of between 80 percent and 120 percent since March 2009. “Recent moves in markets have highlighted how tired this bull market has got,” Odey Asset Management told clients of the Odey European fund in its May report.
In late October, Odey was said to be very bearish both on equities and on several currencies. Odey at that point saw an inflection point coming and was positioned for it, according to a person familiar with his strategy. In December, Odey made a lot of his money from being long the U.S. dollar and simultaneously short the Australian dollar.
In addition, he was short equities, especially European companies with emerging markets and commodities exposure. He was especially betting against miners and financial firms. Meanwhile, entering 2015, Odey was 10 percent short in his equity book.
Now that is what you call delivering alpha.
