Hedge fund strategies across various sectors saw returns fall to approximately +0.8% by August 23rd, after exceeding +2% last week. Crowded trading in the US has clearly taken a toll, but there are signs that the worst may be over. More importantly, the total rolling inflow of US hedge funds bottomed out on August 20th and has begun to improve. Since 2018, this indicator has turned positive annually by mid-September, suggesting a seasonal possibility of renewed increases in total positions in the coming weeks. Meanwhile, momentum (quantitative or trend-following strategies that chase highs and lows) has recently experienced a significant drawdown. Historically, returns after deep drawdowns have been significantly more divergent, thus caution is warranted regarding the future direction of momentum. (The above views are from a JPMorgan report dated August 23rd.)
