Q4 2021 Filings Insights
Payment processors dip while chip makers advance as hedge funds rotate their positions and managers keep seeking alpha
It’s quarterly filings season! Yet you probably didn’t wake up this morning anxious to read about hedge fund trends and manager rotations from Q4 2021. Your thoughts more likely gravitated towards the heavy events unfolding in Ukraine. Our thoughts as well. But not due to the economic ripples we are prone to dissecting here at the Novus Platform; rather, it's the tragic scale of innocent lives lost, and the heroic story the people of Ukraine are writing that captivates us today.
With our collective preoccupation noted, we’ll now proceed with our analysis of Q4 2021, reported on a 45-day lag per SEC’s filing requirement, as we do.
Top 20 Names in The Hedge Fund Universe
There’s been practically no movement at the top of the list of commonly held names within the Novus Hedge Fund Universe (HFU). In fact, the 16 most widely held stocks in that population carried over from 3Q21 to 4Q with a minimal amount of jockeying for position. Nvidia jumped up from 27th to 17th while two others—Snowflake and Taiwan Semiconductor—edged their way from just below the following chart’s cutoff to just above it. PayPal, Salesforce, and Sea Ltd. dipped below the 20th rank to make room, but none of them sank too far.
One takeaway we can see—and it’s not a terribly strong indicator—is that names related to payment processing tended to lose ground. Visa advanced, but American Express, Mastercard and PayPal lost some wallet share among hedge fund managers.
Payments’ loss is chip makers’ gain, though. Nvidia was the biggest success story on the list—though even that rise wasn’t exceptional—while Taiwan Semi also gained momentum. Nvidia, as we’ve previously reported, has a way of bouncing around this chart quarter after quarter. The rest of the non-social, non-content Tech sector was represented by up-ticking Snowflake and down-ticking Salesforce, as well as Apple and Microsoft, which are consistently No. 1 and No. 2.
If you're looking for more insights from top hedge funds as well as aggregate trends, take a look at our Hedge Fund Ownership dashboard.
Managers in the News
Gabe Plotkin
The head of Melvin Capital Management has been making the pages of the Wall Street Journal a lot lately. We wouldn’t be surprised if he’s canceled his subscription.
Gabe Plotkin was the guy you went to for 30% annualized returns—and courtside seats for the Charlotte Hornets, which he co-owns. Then, as a meme stock shorter, he lost $6.8 billion on GameStop in January 2021. Since then, he’s been working on his comeback.
“By year-end, the fund was part way back,” according to the Journal. “For the full year, Melvin was down 39.3%, but far below the average 11.9% gain for stock-picking hedge funds.” But before the end of January 2022, the fund had dropped another 17%. Now Citadel want to redeem at least half of what stake it still has.
Sander Gerber
We don’t know what that means. It took us 20 minutes to figure out how to even type it. But here’s what we do know: It’s the formula for the Gerber statistic, a new way of looking at securities co-movement which is proving to be a more valid substitute for historical covariance. But so what? Wall Street is paved with ink spilled into such formulae—comprehensible only to an anointed priesthood—that are replaced in coordination with new textbook releases. So why is the Gerber statistic generating buzz?
For some levels of risk target, the average annualized geometric return resulting from use of the Gerber statistic is more than 90 basis points higher than when using historical covariance. It’s even 40 basis points higher than that of the shrinkage estimator developed by Olivier Ledoit and Michael Wolf in 2003. Harry Markowitz, the 94-year-old modern portfolio theory pioneer who developed historical covariance in the 1950s, is a co-author of the Gerber statistic paper.
The principal author of the 2021 work, though, is the namesake Sander Gerber, CEO/CIO of Hudson Bay Capital. So it’s fair to ask: How is Hudson Bay doing? The answer is good and getting better.
The fund’s biggest bet today is on data security player Zscaler, of which Hudson Bay owned 19.1% at the end of the fourth quarter. That’s after a big sale; it had a 25.6% share at the end of the third. It moved that money into establishing new positions in Microsoft, Apple, and Meta.
The fund uses their shiny new model to determine method and means for diversification—aiming to mitigate risk and maintain returns. Stay tuned to see if the model in practice debunks the whole “higher risk, higher reward” spiel.
You can explore Hudson Bay Capital Management LP on the Novus Platform for free through the end of the quarter on our Manager Analysis Insights Dashboard.
General Trends
When will Materials materialize?
There’s a reason why 26.6% of the HFU’s exposure is to the Tech sector: It offers the highest returns. These investments have yielded a 28.4% three-year return. The next best sector by that reckoning is Consumer Discretionary, and yet funds have more money parked in either Health Care and Financials. What’s the best-performing sector after that?
If you guessed Materials, then you know more than most. It has captured only 2.9% of the HFU’s attention.
Take a deeper dive into current managers' strategies by visiting the Manager League Tables and selecting the Strategy Dashboard.
Hats off to the alpha three
The Novus Platform tracks 10 funds that specialize in international investments. Among them, only three show any annualized alpha.
Shah Capital Management is doing well with a gaudy 3,181.9 bps, and PM Capital’s 923.6 bps would be the envy of just about any firm today. And at least CI Investments doesn’t have to frame its 19.6 bps in parentheses. Everyone else on the list does.
Explore more information like this on the Novus Specialization Dashboard, accessible via our Manager League Tables.
Give me your source
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