New York (HedgeCo.net) – The hedge fund industry as a whole has not had the kind of year they would have liked in 2015. With the stock market soaring in 2013 and 2014, some investors were already questioning the need for hedge funds and then for the industry to struggle during a volatile year like this one has been has only created more questions from investors.

While the industry as a whole may have struggled, some have prospered and the difference in the dispersion was mainly due to investment style. Macro funds struggled this year and there were a number of high-profile macro funds that closed up shop this year. Part of the problem for the strategy was too many funds in the same trades. The common trades seemed to be:

• Betting on a rate hike in the U.S. all year
• Being on the wrong side of currency trades in the Swiss Franc and Chinese Yuan
• On the wrong side of energy bets, both equity and debt trades
• The reversal in healthcare stocks

A recent article from Business Insider cited three reasons for so many hedge funds closing shop in 2015—dispersion, volatility and liquidity. With some hedge funds returning over 30% and others losing over 20%, it makes it easier for an investor to justify leaving the one that lost 20%. As for volatility, the August spike in volatility caught a number of funds off guard and when they reacted too late and then the market moved back up in October, it caused problems on the fall and on the recovery. Liquidity issues come in two forms: too many investors looking to cash-out at the same time or investments that are illiquid that start falling sharply like we have seen in the high-yield debt market in recent weeks.

Rick Pendergraft
Research Analyst
HedgeCoVest