Hedge Funds Trail S&P Unless They Have Bitcoin (AAPL) – Investopedia

Fortunes are not picking up for hedge funds, or at least not for most of them. According to data compiled by Hedge Fund Research and reported by CNBC, the average hedge fund has brought in returns of only 3.5% from the beginning of the year through the end of May. That constitutes less than half of the gains that the S&P 500 has made. Nonetheless, some hedge fund have been able to stand apart from the rest of the field. Those funds focusing on technology and currencies tended to do better than the average fund. Key to the success of currency-focused firms, it appears, is an investment in Bitcoin. While most hedge funds have shied away from the digital currency, perhaps this will convince the industry that a bet on Bitcoin may be a good move.

According to the Hedge Fund Research report, "macro was led by the HFRI Macro: Currency Index, which vaulted +3.5 percent, the strongest month return since inception, bringing YTD performance to +8.2 percent." What was behind this outsized performance? "Contributions from Euro, Swiss Franc, New Zealand Dollar and Korean Won," but also, and perhaps more importantly, there were "strong contributions from exposure to digital currencies."

Given Bitcoin's performance in recent weeks, it's easy to see why those few hedge funds who hold the cryptocurrency would be outperforming others. In the past several weeks, the leading digital currency has posted a number of fresh all-time high records. Since the beginning of 2017, Bitcoin has almost tripled in value, thanks in large part to significant demand from Asia and growing expectations that it will lead a revolution in the way that banking and lending will be handled around the world.

The other category of fund that has seen success outside of the average gains reported by HFR are those focused on technology names. Tech funds have been centered around so-called "FANG" stocks as well as Apple (AAPL), bringing in average gains of 2.7% in May and YTD returns of 9.1%.

Other types of hedge funds may have the chance to make big gains if volatility spikes in the remainder of 2017. Kenneth J. Heinz, the president of Hedge Fund Research, indicated in the report that "the thematic drivers of performance for 2H17 have shifted to include not only the Trump and Yellen trades, but also the volatility reversal trade and the increased risk associated with terrorism and cybersecurity. Managers positioned tactically long and short which are able to navigate both rising and falling volatility market cycles are likely to lead industry performance in 2H17."

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Hedge Funds Trail S&P Unless They Have Bitcoin (AAPL) - Investopedia