Heightened market turbulence, underpinned by a wide variation in the performance of individual assets, macro volatility, and higher interest rates have created conditions just right for typically high-fee charging global hedge funds to prove their worth.
While they don’t always get it right, global hedge funds try hard to earn their keep – through superior stock-picking and quant strategies – when the going gets tough.
Ultimately, what hedge funds are trying to do is to align their own interests, a la through higher fees, with their investors’ by significantly outperforming broader market indices.
Figures for 2025 through to the end of November suggest global fund managers are finally in the money with returns up around 15%, according to a recent Goldman Sachs report.
Hedge funds outpace multi-strategy rivals
Thanks largely to chunky gains in healthcare and a tilt toward United States markets, hedge funds have outpaced several big multi-strategy rivals and even major stock indexes.
A granular look at Goldman’s data suggests that in November, long and short funds demonstrated resilience by navigating a sharp selloff in technology stocks to post gains of 1.1%.
These hedge funds outperformed major indices such as the S&P 500, which remained roughly flat during the month.
The Nasdaq Composite Index experienced a decline of over 1.5%, while the Dow Jones Industrial Average climbed just over 0.3%.
According to Goldman’s data, higher risk punts on specific assets, especially those focused on the healthcare industry, U.S. exposure, and crowded trades, were key drivers of performance during November.
Having posted positive returns for the sixth consecutive month, the healthcare sector continued to be a strong performer last month, up 7% in November and surging by around 30% for the year ending November.
Hedge funds, on a net basis, increased their investments in global equities for the third consecutive month, marking the fastest rate of increase since June.
Aided by their short positions and overweight in healthcare, systematic and quant funds - both relying on rules-based, data-driven investment strategies - also had their best month since March, returning about 3.7% in November.
Tech falls on fears AI bubble brewing
Meanwhile, technology, media, and telecom strategies fell around 0.8% in November with fears of an AI bubble brewing, triggering a tech selloff despite stock pickers continuing to add to their U.S. tech exposure for a fourth consecutive month in a row.
In retrospect, the hedge fund playbook of remaining net buyers of global equities appears to have been counterintuitive.
However, remaining bullish on North American stocks - for a third month in a row - and offloading European equities at the quickest pace in seven months has clearly paid off.
Meanwhile, in developed Asia, hedge funds leaned into Japan by adding long positions and turned less pessimistic on Hong Kong by covering shorts.
While healthcare, not mega-cap tech, is increasingly the key growth engine, big multi-strategy players like Balyasny, Citadel, Schonfeld, and Millennium also notched gains in November, which suggests the market is now looking beyond big tech when it comes to performance.
Market decouples from tech-heavy benchmarks
Analysts reading the tea leaves within this year’s results no longer believe that simply tracking tech-heavy benchmarks can cut the mustard while markets remain so turbulent.
While the current strategy may have a relatively limited shelf life, hedge funds are going to town in healthcare, while using short positions to offset current weakness elsewhere, notably the frothy AI-exposed tech.
With healthcare up almost 30% for the year through to November and hedge funds continuing to lean into U.S. exposures, the market is under no illusions as to where financially savvy institutional money sees more reliable growth and earnings.
Assuming this pattern remains intact for longer, analysts suspect the next phase of the cycle could favour active, research-heavy strategies over passive index-hugging.
This would see more institutional money gravitate toward managers who can pivot across regions and sectors instead of riding a one-trick pony like tech AI.
