• Key Market Indices
    • S&P 500: 3,958.55 (-0.32%)
    • DJIA: 33,066.96 (-0.31%)
    • HSI: 28,495.97 (-0.29%)
    • STI: 3,186.15 (-0.15%)
    • Gold Spot $/Oz: $ 1,686.09 (-32.34)
    • Brent Crude: 64.29 (+0.23%)
    • Bitcoin: 58,929.89 (+2.64%)
  • Value Quants Take Wall Street by Storm With Best Run Since 2000 (link)
    • “There’s still a huge opportunity for upside in value,” said the chief investment officer at QMA, PGIM’s systematic unit. Value exchange-traded funds have gained more than $110 billion since November to wipe out pandemic losses.
    • Everything from corporate earnings and inflation expectations to valuation gaps suggest the market rotation has only just begun. But a decade of sustained underperformance means existential doubts linger across quantland.
    • Head of strategy for systematic equities at Jupiter Asset Management. “We were always just cautioning clients that nothing works all the time. There is a cycle to everything.”
    • Holding steady for the long haul has proved a hard pill for his clients to swallow. With a stock bull market driven by a handful of tech companies over the past decade, factor quants like Heslop who tend to spread their exposures and bet on value have struggled to beat benchmarks.
    • “One of the main problems that has dislocated the equity styles is this very concentrated performance of mega-cap growth,” said Hansen from Nordea Asset Management.
    • Meanwhile, some of the staunchest value, such as a quant DFA, are shining at a time when hedge funds overall have been blindsided by the rotation out of popular tech stocks.
  • One of World’s Greatest Hidden Fortunes Is Wiped Out in Days (link)
    • One part of Hwang’s portfolio, which has been traded in blocks since Friday, was worth almost $40 billion last week. It evaporated in mere days.
    • Hwang set it up as a family office with limited oversight and then employed financial derivatives to amass big stakes in companies without ever having to disclose them.
    • The value of the portfolio of positions block traded dropped 46% in the last week, erasing 2021 gains.
    • Hwang never filed a 13F report (must be filed if one holds more than $100 mm in US equities), because he used total return swaps which allows to keep positions on banks' books and it also accommodates leverage.
    • By Thursday’s close, the value of the portfolio fell 27% -- more than enough to wipe out the equity of an investor who market participants estimated was six to eight times levered.
      • JPMorgan Says Banks’ Archegos Hit May Be Up to $10 Billion (link)
      • Nomura CEO’s Honeymoon Ends With $2 Billion Archegos Debacle (link)
      • Credit Suisse Bid for Tidy Archegos Fix Ends With Banks Brawling (link)
  • Things Just Keep Getting Worse for Hedge Funds as Long Bets Sour (link)
    • After being burned during January’s retail-driven short squeeze in stocks, now hedge funds are feeling the pain on the long side as well. A basket of the 50 most-popular stocks has fallen this month, while a group of the 50 most-crowded shorts gained, dealing a double blow to performance.
    • As a result, the long-short spread has worsened after a brief recovery in February. Down almost 11% since the end of December, hedge funds’ alpha is heading for the worst year since at least 2015.
    • “In many cases, hedge funds tend to be -- not all of them -- but they’re often momentum traders,” he added. “As soon as something starts to get momentum, it suddenly reverses and they get caught on the wrong side.” says CIO of Charles Schwab
  • WorldQuant's Chropuvka Seeks to Motivate Quants (link)
    • The hedge fund WorldQuant president, Gary Chropuvka, likes to run competitive challenges and offer incentives to those who develop innovations that help returns exceed benchmarks.
    • The firm has a global footprint and employs a substantial team of quants. WorldQuant currently manages about $7 billion in AUM.
  • Why hedge fund bear Russell Clark is urging caution on gold prices (link)
    • Traditionally, investors have flocked to the commodity as a defensive asset during times of turmoil, with gold holding its value over the long term, and being recognised as both a store of money and medium for transactions.
    • But despite a soaring market crash in 2020, the gold rally quickly petered out as stock markets rebounded later in the year. Gold, as measured against food prices, was cheap in 1970 and 2000, but expensive in 1980, 2012, and in 2020.
    • “Gold looks to be driven far more by fund flows, as its prices had matched inflows into the main gold ETF, GLD US, very closely.” says Clark from Russell Clark Investment Management.
    • “One ounce of gold bought 400 Big Macs in 2010, up from a low of 100 in 2000. We have other data points, where in 1979, one ounce of gold bought 660 Big Macs, up from a low in 1970, when it only bought 66 Big Macs. The current ratio of 350, makes gold look expensive.”
  • Long-running trend-following hedge fund Drury Capital scores double-digit returns amid ‘erratic’ market movements (link)
    • The Diversified Trend Following Program advanced 13 per cent in the first two months of 2021. Commodities account for around half the portfolio, adding to the portfolio’s ability to “ride the erratic movements” in markets and deliver positive returns.
    • Meanwhile, the Drury Capital Multi-Strategy Futures Program, a new CTA strategy launched in 2020, has generated a 22 per cent return during its first year of trading to February 2021.
    • The strategy combines global equities and fixed income markets investing with an uncorrelated trend-following approach, scored a 3.8 per cent gain last month.
    • “In the highly volatile trading environment of 2020, the benefit of diversification among uncorrelated strategies proved to be of great importance,” says Drury. “The portfolio blends sub-strategies that are uncorrelated and of different time horizons, which, on balance, performed well in the tumultuous period.”
  • A “disastrous direction of travel”: Why bitcoin is now on a collision course with ESG (link)
    • Hedge funds are continuing to profit from the ongoing surge in the cryptocurrency sector. At the same time, an increasingly large number of investors are calling to take a sustainability-based stance and implement ESG-compliant factors in their portfolios.
    • E: Bitcoin mining energy now exceeds the annual consumption of countries such as the Netherlands and the United Arab Emirates,, and is approaching that of Norway and Pakistan.
    • “Either the energy consumption increases with severe environmental consequences, or the bitcoin price collapses – which helps the environment but undermines the case as a good investment.” says Furdak, ESG CIO at Man Group.
    • S: Social consequences of trading bitcoin, which he considers less stable and “significantly more volatile”, ultimately holds no intrinsic value.
    • “This kind of promotion is irresponsible to the point of immoral,” he added. “Whether or not bitcoin does become mainstream, at this point in time it remains a speculative investment. And history tells us the bursting of bubbles almost always has consequences
    • G: “A lax regulatory and enforcement framework makes bitcoin attractive to those who would avoid the network of regulations and sanctions that govern orthodox currencies and financial markets,”
    • He also pointed to the vulnerability of bitcoin wallets to hacking, as well as a lack of enforcement surrounding transactions, various clearing issues, and data protection and privacy concerns stemming from its reliance on public ledgers.

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