Hedge Fund Positioning Suggests There Is Caution Amidst Euphoria Heading into 2025

Industry Shows Historically Low Conviction on the Direction of Assets

NEW YORK, Jan. 22, 2025 (GLOBE NEWSWIRE) — Unlimited, an asset management firm and ETF sponsor that uses proprietary technology to provide low-cost, alternative strategies to a variety of investors, today published its Q4 2024 Hedge Fund Barometer, showing that heading into 2025 hedge fund managers are positioned conservatively while waiting on market uncertainty to play out. According to the Barometer, the industry’s low conviction levels could be underpinned by reluctance to chase the run-up in assets observed in 2024 or make aggressive bets on weakening assets.

Overall, the hedge fund industry posted a modestly positive performance in the fourth quarter of 2024, with overall gross returns of 0.9%, according to Unlimited’s proprietary technology. Event Driven strategies led the quarter with an impressive 2.8% gross return, while Emerging Markets strategies struggled, declining by -2.1% gross.

Hedge fund performance in 4Q24 was bolstered by strategic positioning around key global events. Event Driven and Global Macro managers benefited from investments aligned with expectations surrounding Donald Trump’s re-election in November. In contrast, Emerging Markets managers faced headwinds due to the absence of anticipated Chinese economic stimulus, contributing to the underperformance of the strategy.

Caution Amidst Euphoria Heading into 2025

Looking ahead, hedge fund managers are displaying caution as they approach 2025. Thematically, the Industry seems to be in “wait-and-see” mode, with managers largely maintaining exposure levels near long-term averages across major asset classes.

• Equities: Stock positioning is only slightly above historical averages.
• Credit: Exposure has been reduced to neutral amid further credit spread compression.
• Bonds and Gold: Allocations are aligned with long-term norms, indicating no significant directional bets.
• Commodities and US Dollar (USD): Select opportunities remain, such as long-USD positions driven by weak exchange rate pressures in regions like Canada and Europe.

2024 Performance Recap

Despite a modest fourth quarter, the hedge fund industry closed 2024 with an estimated 12% gross return (~8% net of fees). Equity strategies stood out, with both Long/Short and Event Driven funds outperforming industry averages. Managed Futures lagged, delivering returns below cash after fees.

While industry returns in 2024 exceeded the long-term average by 300-400 basis points, they fell short of the extraordinary performance seen in equity markets during the same period.
Key Industry Insights:

• Event Driven: Top-performing strategy in 4Q24, leveraging political climate opportunities.
• Emerging Markets (EM): Hampered by macroeconomic challenges, particularly in China, leading EM to post the weakest return amongst its peers.
• Managed Futures: Underperformed cash returns after fees, reflecting challenging market conditions.

Positioning Outlook

As hedge funds enter 2025, managers appear to be holding firepower awaiting clearer market and economic signals. With risk-taking at multi-year lows, the industry appears poised for a cautious but flexible approach to emerging opportunities.

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About Unlimited
Founded in 2022 by Bob Elliott, Bruce McNevin and Matt Salzberg, Unlimited is an investment firm using proprietary technology to create strategies that offer lower-cost access to 2 & 20 style alternative investment strategies, such as hedge funds, to a wide variety of investors. Mr. Elliott has built innovative hedge fund strategies for more than two decades, including at Bridgewater Associates, the world’s largest hedge fund. Mr. McNevin is a Professor of Economics at New York University and has held various data science positions at hedge funds Clinton Group and Midway Group, along with positions at Bank of America and BlackRock. Mr. Salzberg serves as a Managing Partner at Material and Board Director of Unlimited. Learn more at unlimitedfunds.com.

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For informational and educational purposes only and should not be construed as investment advice. The data shown herein represents past performance and should not be construed as providing any assurance or guarantee as to returns that may be realized in the future. No representation is being made that any investment will or is likely to achieve profits or losses similar to those shown herein. No investment strategy or risk management technique can guarantee return or eliminate risk in any market environment.