The Morning Brief: Surging Stock Market Helps Revive Hedge Funds

February 13, 2017   Stephen Taub

Brazil-focused hedge funds gained 7.72 percent in January.


Nothing like a surging stock market to shine a brighter light on hedge funds. The average hedge fund gained 1.16 percent last month. More significantly, for the second straight month, more than 70 percent of hedge funds posted gains, according to a new report from eVestment. January was also the eleventh positive month in the past 12 for the average hedge fund. The biggest winners last month were strategies most investors probably didn’t have exposure to. According to eVestment, Brazil-focused hedge funds generated average gains of 7.72 percent while Russian-focused funds gained 4.17 percent. Altogether, emerging markets funds were up 3.37 percent, on average, in January. The biggest losers were the managed futures funds, a strategy that boasts a virtually non-correlation to stocks. They were down, 0.74 percent, on average. Macro funds were down 0.33 percent last month.


Wow. Shares of Sears Holdings exploded, surging more than 25 percent to close at $6.96 after jumping nearly 50 percent during the trading session following the shriveling retailer’s announcement that it’s totally revamping the company. The company said it plans to cut costs by at least $1 billion on an annual basis by reducing corporate overhead, more closely integrating its Sears and Kmart operations, and improving merchandising, supply chain and inventory management. It also said it hopes to reduce debt and pension obligations by $1.5 billion for fiscal 2017 through asset sales and improving profitability and working capital management. "We believe the actions outlined today will reduce our overall cash funding requirements and ensure that Sears Holdings becomes a more agile and competitive retailer with a clear path toward profitability," stated Edward Lampert, the embattled hedge fund manager who also serves as chairman and chief executive officer of Sears Holdings. Lampert’s ill-fated wager on Sears and his steadfast commitment to the investment has defined the career of the once-gilded hedge fund manager and former Goldman, Sachs arbitrageur.


Elliott Management bought 580,000 shares of The Advisory Board Company, boosting its stake in the health care consulting firm to 8.3 percent. The multistrategy firm best known for its activism continues to say in regulatory filings the stock is undervalued, but has no specific plan for unlocking this value. This situation will no doubt change in the future. Shares of Advisory Board were unchanged on Friday, closing at $47.25.


Meanwhile, shares of Arconic, another current Elliott activist target, surged 6 percent on Friday to close at $29.62. The hedge fund owns 12.2 percent of the aerospace and automotive-parts maker and has nominated five individuals to the board of directors. As we earlier reported, Elliott Associates was up 13.1 percent last year, making it one of the best performing multistrategy funds.

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