Stockholm (HedgeNordic) – Nordic hedge funds booked an average gain of 1.2 percent in December to end the year on a firm footing and achieve a full-year gain of almost 6.0 percent. This follows the 8.3 percent advance for 2020, the industry’s best annual performance since 2010. As in 2020, much of the industry’s 2021 advance was fueled by the strong performance of equity-focused hedge funds, which gained 10.0 percent last year.

Month in Review – December 2021

For the Nordic hedge fund industry, 2021 was characterized by the continued strong performance of equity hedge funds, a surprisingly strong showing by funds of hedge funds, and a challenging environment for CTAs and fixed-income funds. Nordic equity hedge funds advanced 1.4 percent on average in December to end the year up 10.0 percent. Funds of hedge funds, meanwhile, ended the month of December in the green for an eleventh consecutive month to end 2021 up 7.0 percent, the group’s best annual performance since 2005.

Multi-strategy funds, the most diverse and inclusive strategy category in the Nordic Hedge Index, were up 1.2 percent on average in December, ending the year in positive territory at almost 6.0 percent. Fixed-income funds, meanwhile, advanced 1.7 percent on average last month to bring the group’s 2021 performance back in positive territory at 1.2 percent. Nordic CTAs were down 0.9 percent on average in December, with the group’s 2021 performance slipping into negative territory at 0.1 percent.

At a country level, Norwegian hedge funds gained the most in 2021 with a full-year return of 9.8 percent after gaining 1.1 percent during the last month of the year. Finnish hedge funds, meanwhile, ended the year up 7.8 percent after edging down 0.3 percent in December. Danish hedge funds advanced 2.6 percent on average last month to end the year up 6.4 percent. Swedish hedge funds, which account for the largest portion of the Nordic hedge fund industry, gained 4.2 percent in 2021 following an average gain of 0.7 percent in December.

The dispersion between last month’s best- and worst-performing members of the Nordic Hedge Index widened month-over-month. In December, the 20 percent of Nordic hedge funds advanced 5.5 percent on average, while the bottom 20 percent lost 2.2 percent on average. In November, the top 20 percent were up 2.6 percent on average and the bottom 20 percent were down 4.6 percent. About three in every four members of the Nordic Hedge Index with reported December figures posted gains last month.

Top Performers in December

Atlant Edge, one of Atlant Fonder’s three market-neutral funds, was last month’s best-performing member of the Nordic Hedge Index with an advance of 10.5 percent, which brought its 2021 return to 19.2 percent. HP Hedge Fixed Income of Danish fixed-income boutique HP Fonds reached its best month on record with a monthly advance of 10.3 percent, trimming its 2021 decline to 8.7 percent. Healthcare-focused, long-biased long/short equity fund Rhenman Healthcare Equity L/S advanced 9.2 percent last month, ending the year in positive territory at 12.8 percent.

Top Performers in 2021

Borea Utbytte, a Norwegian banking sector-focused equity fund launched by Borea Asset Management in late 2020, topped the Nordic hedge fund industry’s performance charts in 2021 with a full-year return of 61.8 percent. The fund, which has the ability to maintain up to 150 percent long exposure and up to 50 percent short exposure in the Norwegian banking sector, has delivered a cumulative return of 85 percent since launching in October 2020.

Activist fund Accendo Capital followed suit with an advance of 58.4 percent in 2021, after booking a full-year return of 69.3 percent in 2020 and 45.6 percent in 2019. The long-only activist fund has generated an annualized return of 18 percent since launching in early 2008. Systematic value-focused fund HCP Quant reached its best annual performance in 2021 with a full-year return of 47.5 percent. The rotation to value stocks from pricier growth stocks catapulted HCP Quant to be one of the best-performing funds within the Nordic Hedge Index last year.

Oslo-based energy-focused long/short equity fund OAM Absolute Return ended 2021 up 45.1 percent after booking a full-year advance of 50.9 percent in 2020. The fund managed by Harald James Otterhaug has recovered from a large drawdown in 2019 driven by a set of inefficiencies that remained inefficient far too long, which caused a group of investors to leave in 2019. The strong performance in the past two years has brought the fund’s annualized return since launching in late 2005 to 11.3 percent. FE Select, an absolute return fund focused on the small-cap space in the Nordic region, returned 40.8 percent in 2021 to bring its inception-to-date performance to over 55 percent since the launch in late 2020.

Highest Sharpe Ratios

Given the heterogeneous nature of hedge fund strategies, absolute performance numbers do not always reflect how successful hedge funds are. Risk-adjusted measures such as the Sharpe ratio are a good starting point in the process of identifying the best-performing hedge funds. The three tables below display the Nordic hedge funds with the highest Sharpe ratios over the past 12 months, past 24 months and 36 months.

If looking at the short period of 12 months to the end of last year, Agenta Alternativa Investerignar, a multi-asset absolute return fund with a broad investment mandate, reached a Sharpe ratio of 9.8. Catella’s Nordic Corporate Bond Flex and Credit Opportunity funds achieved 12-month Sharpe ratios of 7.3 and 6.8, respectively.

Over the past 24 months, paradigm-focused long/short equity fund Adaptive Paradigm Alpha reached the highest “reward-to-variability ratio” of 5.1. Alcur Fonder’s two hedge funds, Alcur and Alcur Select, achieved 24-month Sharpe ratios of 2.7 and 2.6, respectively.

The Negatives

Whereas 2021 was a good year for the Nordic hedge fund industry as a whole, some managers experienced a tough year. In the first half of last year, Swedish systematic investment manager IPM Informed Portfolio Management (IPM) ceased all investment activities and returned all capital to investors after more than two decades. IPM’s flagship systematic macro strategy, which relied on a systematic and fundamental approach to trade across currencies, government bonds and equity indices, struggled in recent years, especially in the first quarter of last year (read more).

Fixed-income markets experienced heightened volatility towards the end of October, as higher than expected inflation readings in a number of wealthy economies led to an explosion in interest rate volatility and repricing of central banks’ path of expected future policy rates. The heightened volatility claimed a few victims, including Brummer & Partners-backed Frost. Launched on January 2 of 2020, Frost Asset Management’s Scandinavian-focused fixed-income relative value fund closed down after incurring a loss of 17.6 percent in October. Frost was down 23.4 percent in 2021 through the end of November (read more). With a loss of 51.4 percent for 2021, Max Mitteregger’s long/short equity fund Gladiator Fond will be merged with Adrigo Small & Midcap L/S under Adrigo’s management next year (read more).

The Month in Review for December 2021 can be downloaded below:

Photo by Anne Nygård on Unsplash