- Advertisement -
- Advertisement -

Related

Which Hedge Fund Strategies Perform Best in Late-Cycle Phase?

Latest Report

- Advertisement -

Stockholm (HedgeNordic) – Market observers may have different views on where we are in the business cycle, but those finding themselves in a typical slowdown phase of the cycle may be interested in finding out which hedge fund strategies perform best during this phase. In a recently published report, asset manager Fidante Partners lays out an analysis of the behavior of a range of hedge fund strategies during the late stages of a business cycle covering a period of 20 years.

Although every business cycle is different in its own way, the four widely recognized phases of a business cycle are: recovery, expansion, slowdown, and recession. According to Fidante Partners, we are currently in the late stage of a business cycle characterized by flattening or even inverting yield curves and deteriorating growth prospects. Whereas various hedge fund strategies tend to generate similar returns over a long enough period of time, there is huge performance dispersion among strategies in the more challenging environment of a late stage business cycle. Because of more frequent corrections in equity markets and increased market volatility, macro-focused and short-biased hedge funds tend to perform better than their long-term averages in the late stage of business cycles.

Risk and return of hedge fund strategies in an economic slowdown. Source: Bloomberg, Fidante Partners. Data in US Dollars as at 31 July 2018.

Event-driven and long/short equity strategies, meanwhile, are found to struggle during the late stages of a business cycle as financial markets get choppy. Merger arbitrage, statistical arbitrage, and equity market-neutral hedge funds tend to perform in line with their long-term averages during this stage of a business cycle. That said, equity market-neutral and arbitrage strategies behave as expected in the late-cycle phase. Equity market-neutral hedge funds, for instance, aim to produce returns which are independent of broader equity markets and thus largely independent of changes in growth prospects or interest rates. Returns produced by arbitrage strategies are also expected to be largely independent of the prevailing interest-rate environment and growth prospects.

Merger arbitrage, statistical arbitrage, quantitative and volatility hedge fund strategies are found to deliver superior risk-adjusted returns across the entire cycle, with this subset of strategies also performing strongly during the late stage of a business cycle.

Risk-adjusted returns of hedge fund strategies in an economic slowdown. Source: Bloomberg, Fidante Partners. Data in US Dollars as at 31 July 2018.

The paper titled “Hedge funds in the late stages of a business cycle” can be found below:

Picture © leungchopan—shutterstock.com

Subscribe to HedgeBrev, HedgeNordic’s weekly newsletter, and never miss the latest news!

Our newsletter is sent once a week, every Friday.

Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

Latest Articles

Double Win for Accendo

Activist investor Accendo Capital maintains a concentrated portfolio of six holdings, making its overall performance highly sensitive to developments within individual investments. The fund delivered...

Crypto Climbs, Copper Crumbles: A Mixed July for Nordic CTAs

The NHX CTA Index posted another monthly gain in July 2025, as steady profits in soft commodities and equity indices managed to offset balance...

Strong Five-Year Run Fuels Excalibur’s Return to SEK 1 Billion AUM

Excalibur Fixed Income has regained the SEK 1 billion mark in assets under management for the first time since 2019, driven by a strong...

Quirky Questions for Dr. Alexander Mende (RPM)

Not every conversation in the hedge fund world needs to revolve around trend signals, Sharpe ratios, or manager due diligence. In HedgeNordic’s ongoing Quirky...

Elementa Tops Swedish Hedge Fund Universe in H1

After celebrating its ten-year anniversary in March, long/short equity fund Elementa closed the first half of 2025 as the best-performing Swedish hedge fund, delivering...

Asgard Winds Down Macro Strategy, Refocuses on Fixed Income

Less than a year after the launch of Asgard-Steno Global Macro Fund – a collaborative effort between macro strategist Andreas Steno Larsen and fixed-income...

Allocator Interviews

In-Depth: High Yield

Voices

Request for Proposal

- Advertisement -
HedgeNordic
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.