Cyclical trends donāt always revert back and forth as dependably as traders wish but a few glowing examples of wheels turnings can be found by looking at last year versus the year before, and at the last decade versus the one prior.
In the ā00s, there was a single worst performing sector, and it was technology, according to Hedge Fund Research.
HFRās Technology/Healthcare sector produced a ten-year return of 1.74% (average, annualized) which is not surprising considering that tech dominated the 1990s, a ten-year period in which the HFR tech sector index produced an average annualized return of 35.5%. If the current market rally indeed has legs and is the start of something lasting, thereās some likelihood that technology will lead the way. And if terrible performing sectors can prove a harbinger of good things to come look no further than the comeback of convertible arbitrage funds in 2009 versus 2008. Many styles snapped back in 2009 but few experienced the reversal of fortune as did convertible arb, according to HFR stats.
In 2008, that sub sector had returns of negative 34%, compared to negative 19% for the broad HFRI Fund Weighted Composite Index.
In 2009, convertible arbitrage sector notched a 59% return.
āAt the end of 2008 there was so much capitulation in the marketāinvestors just selling with no rhyme or reason, just needing to raise cashāit set the stage for pricing dislocation, the magnitude of which has never been seen before,ā says HFR president Ken Heinz.
So what was the single worst-performing hedge fund sub strategy of 2009? That would be short-biased funds which as a group lost 23.47% last year.