Stockholm (HedgeNordic) – As stocks have broadly plummeted in unison this year, 2022 is shaping up to be rather disappointing for stock-picking managers. This market rout, however, has worked to the benefit of long/short equity fund Elementa, which is enjoying its best year on record with a year-to-date advance of over 30 percent.
“At the beginning of the year and throughout a large portion of 2021, we struggled to find interesting long positions that would meet our high standards in terms of risk/reward whereas we saw a lot of opportunities on the short side, hence our positioning resulted in a negative net exposure throughout the year,” recalls Elementa founder and CIO Marcus Wahlberg. “Our strong performance comes from a combination of great alpha in our long book together with a 60 percent performance in our short book,” says Wahlberg.
“Companies with weak operational performance usually perform worse than good companies in difficult market environments…”
Elementa currently ranks as this year’s third best-performing fund within the Nordic hedge fund universe in a top ten ranking dominated by trend-following CTAs and energy-focused managers. Since launching in March 2015, Wahlberg’s long/short equity fund has shown a tendency to perform well in difficult market environments such as the fourth quarter of 2018, the Covid-stricken first quarter of 2020, and the first three quarters of 2022. “Companies with weak operational performance usually perform worse than good companies in difficult market environments, this is even more the case coming from an exuberant market environment,” explains Wahlberg.
HELICOPTER VIEW ON 2021-2022
Elementa booked its first-ever down year in 2021 due to its negative net market exposure in an exuberant stock market that shook off all concerns about Covid, surging inflation, rising interest rates, and geopolitical tensions. “The fund composition was largely the same this year as it was last year,” says Eric Andersson, portfolio manager of Elementa. “From the basis of our fundamental framework, one needs to be patient and truly give time for our positioning to materialize. Looking back at last year’s negative 16 percent performance, it is satisfying to be able to return almost twice that this year, again emphasizing our risk/reward philosophy.”
“We do believe that resilience in major downturns is vital in achieving a high long-term compounding rate.”
Elementa has returned 99 percent since inception, compared to a return of 68 percent for the SIX Return Index that measures the performance of equity markets in Sweden. “We do not focus on crisis alpha and it’s impossible to know exactly when our positions will pay off, but we do believe that resilience in major downturns is vital in achieving a high long-term compounding rate. Hence, we recommend investors in our fund to have a long-time horizon, at least 3-5 years,” emphasizes Andersson.
Up over 30 percent year-to-date through the end of September, Elementa is not yet ready to close its books for the year. “We continue to take advantage of the opportunities that the market provides,” Marcus Wahlberg tells HedgeNordic. “We feel in this environment that the most potential is still in the short book, but in volatile markets, there are more opportunities overall. It’s important for us to be agile,” he emphasizes. Elementa currently maintains similar exposure to long and short positions, complementing its single stock positions with options to achieve a more opportunistic net exposure in this volatile market.