News Digest: Stock-Picking Hedge Funds Achieve Highest Average Returns Since 2020
January 14, 2025
News Digest:
Global hedge funds specializing in long and short stock strategies posted their highest average returns since 2020, achieving a weighted average return of 12.75% in 2024, according to a Goldman Sachs note shared with clients. The robust performance came despite volatile markets, reflecting the funds’ skill in navigating dispersion and leveraging creative shorting strategies.
While their returns fell short of the S&P 500’s 20% surge in 2024 – its strongest back-to-back annual performance since 1998 – hedge funds excelled in balancing long and short positions. These funds profit by betting on rising stocks while shorting others expected to decline. However, short positions underperformed from July onward, slightly weighing on overall returns.
Systematic funds, which trade using algorithms and market signals rather than company fundamentals, delivered approximately 20% returns in 2024, their best since 2022.
Goldman Sachs noted that hedge funds ended the year with elevated leverage levels: 190% gross and 56% net, up from 178% gross and 50% net in 2023. These higher leverage ratios indicate increased trading activity and strategic risk-taking.