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Hedge Fund Performance Anxiety And The Evergreen Case For Equity Upside
For weeks (and weeks), those arguing that the rally in equities had further to run despite a disconcerting flow of news around the virus were generally correct.
Part of the thesis revolved around under-positioning by key investor cohorts, a narrative echoed by pretty much everyone you cared to consult. Tales of Robinhood manias in bankrupt rental car companies notwithstanding, the fact is, participation in the rally from the March nadir has been lackluster.
In a new note, JPMorgan's Nikolaos
So stocks can only go up, forever…LOL
This is a mere hypothesis on my part, and is not wholly consistent with the diverse performance across different sectors, but I might suggest that part of the equity hedge fund problem is elevated correlation either in the broad market or within sectors, since the long/short strategy is attempting to take alpha out that way. It seems strange to think with volatility normalizing that this correlation/dispersion trade has not worked. Like I said, its a mere hypothesis.