Investing.com -- 2024 marked a strong year for hedge funds, with the group delivering double-digit total returns, marking their best performance since the pandemic in 2020.
According to JPMorgan strategists, the success was likely driven by the US equity market strength, and volatility in rates and currencies triggered by the US election and central bank policy shifts.
Hedge fund alpha generation, an excess return a hedge fund produces over a volatility-matched benchmark, improved markedly, continuing a four-year streak of positive alpha.
“2024’s alpha is comparable to 2022 and makes last year the fourth year in row of positive hedge fund alpha,” strategists led by Nikolaos Panigirtzoglou said in a note.
Multi-strategy funds stood out, benefiting from diversification to secure their fifth consecutive year of positive alpha. Meanwhile, macro hedge funds recovered from a challenging 2023 but lagged their 2022 performance.
On the other hand, active mutual funds faced continued struggles in 2024.
“The disappointing alpha by mutual funds has been sustaining the shift from active to passive funds,” JPMorgan’s report notes.
Since the pandemic, passive funds have gained significant market share across equity, bond, and hybrid categories, with passive US equity funds nearing 60% of total assets under management (AUM).
Bond markets saw notable shifts as well, with term premia driving 60-75% of the rise in bond yields since September 2024. JPMorgan highlighted that “model- and survey-based measures of term premia suggest that term premia accounted for 60%-75% of the moves during the sell-off since the local lows in yields in September.”
Despite some positioning adjustments, long-duration bonds remain favored by certain investors, while momentum-based strategies exhibit signs of mean reversion.
In the cryptocurrency market, Bitcoin maintained dominance, supported by strong inflows from spot exchange-traded funds (ETFs) and corporate acquisitions.
According to JPMorgan strategists, Bitcoin's dominance over Ethereum and other altcoins is expected to persist this year. Some of the key factors include its role as a hedge against currency debasement, MicroStrategy's aggressive Bitcoin purchases, the potential accumulation of Bitcoin reserves by US states, and advancements in layer-2 smart contract capabilities.