How Hedge Funds Fared In 2020: Trading Bots Vs Organic Researchers

After the pandemic outbreak early in the year, technology played a crucial role in keeping the global economic engine active. Online shopping, OTT platforms, remote work culture, productivity tracking, and virtual communication software were some of the key highlights of this year.

However, when it comes to hedge funds, computer-driven quantitative strategies did not perform well in 2020.

Robo Research And Advisory As An Investment Solution: A publication on The Next Web cited a crypto hedge fund report by PwC-Elwood, which claims that human researchers prefer quantitative methods as a rationale for investment decisions, mainly because this strategy can eliminate cognitive bias. In comparison, trading bots do not suffer from such discrimination and function based on historical trends.

According to Bloomberg, after years of trailing behind trading bots, human stock pickers gained a lead in 2020. Computer-driven trading strategies went for a toss due to a higher degree of volatility this year.

Quant Funds And Trading Bots in 2020: Quantitative investment management company Renaissance Technologies LLC booked losses because its trading models disproportionately compensated for the volatility, Bloomberg notes citing founder Jim Simmons’s letter to clients in September.

From the beginning of the year till December 18, the firm’s Diversified Alpha fund was 32% lower, and the Global Equities Fund dipped 31%, Bloomberg reported.

Founder of Dynamic Beta Investments, Andrew Beer, opines that quantitative strategies need a reform of sorts in 2021. Bloomberg also quoted him, saying, “Building strategies based on five decades of numbers that don’t matter today might well be a fool’s errand.”

How Human Researchers Fared During 2020: New York-based trading and investment firm Caxton Associates LP’s Global Fund gained around 39.6% through the first week of December, and the Caxton Macro Fund was up 55%, reports Financial Times. The firm invests in currencies, gold, bonds, and stocks using a macro hedge fund strategy.

Tiger Global Management LLC invests in public and private companies across the internet services sector, software, consumer, and fintech. With its long-short equity strategy, the firm recorded a 39% growth from January till the end of November 2020. Simultaneously, the D1 Capital Partners LP’s long-short equity strategy generated a 54% gain for the same period. D1 Capital manages a portfolio of worldwide institutional investors with investments in multiple sectors like finance, healthcare, consumer, technology, etc.