Hedge Funds Wait to See If Trump Campaign Vows Become Realities
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(Bloomberg) -- Hedge funds navigated through a volatile stock market to post strong returns in 2024. But they’re on edge heading into 2025 as uncertainty swirls around President-elect Donald Trump’s policies.
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Wall Street’s smart money crowd successfully monetized gains on high-flying technology stocks this year and made timely bets around the US presidential election. That has helped the group post a gain of more than 14% in 2024, according to the PivotalPath US Equity Diversified Index, which tracks the performance of long-short portfolio managers investing in US stocks. That would be their best calendar-year return since 2020.
But starting next month the investing environment changes with Trump’s inauguration. January is typically a month when hedge funds increase exposure and add long and short positions. However, they’re in limbo now as they wait to see if — and when — the new president executes his more market-sensitive election promises, like sweeping tariffs on imported goods and mass deportations of undocumented workers.
“My suspicion is people will perhaps stay relatively conservative until at least Trump’s inauguration or until some of the first policy announcements,” said Adam Singleton, chief investment officer of the external alpha strategy at Man Group Plc in London.
As investments, hedge funds are as much about protection as returns. During Trump’s first term, they outperformed the market in just one year, 2018, when the S&P 500 Index lost 6.2% while hedge funds dropped just 3.4%. This time around, the thinking is their strategies could best manage disruptions if the new administration’s policies weigh on the economy or stock market.
“There’s so much uncertainty around what the policies are going to be, how much is bluster, how much is real and how quickly these things happen,” said Jonathan Caplis, chief executive officer of the hedge fund research firm PivotalPath.
In addition, there are structural risks in the market right now. Equity valuations are sky high, with the S&P 500 up 27% in 2024 and on pace for its best year since 2019, after soaring 24% in 2023. This would be only the fourth time ever that the equities benchmark has climbed more than 20% in consecutive years. In addition, economic data is showing that inflation may be more stubborn than expected, which could hamper the Federal Reserve’s projected interest rate cuts.