For little-known hedge-fund manager Jim Davis, 2020 is a career-defining year.
The one-time analyst for famed hedge-fund manager Julian Robertson Jr. came into the year managing $675 million at his Woodson Capital Management. That ballooned to about $1.7 billion by the end of November after bets he made against bricks-and-mortar retailers and on e-commerce firms hit pay dirt. His returns soared more than 100% for the year through October and he remains up over 90% through November.
Mr. Davis, 40, isn’t alone. It was a banner year for hedge funds that bet on and against stocks. Two of that industry’s more prominent names, William Ackman and Chris Hansen, deftly navigated the market carnage and subsequent rally to gain 62.8% and 48%, respectively.
For the year through November, stock picking hedge funds posted their best performance relative to the total-return of the S&P 500 since 2010, according to data provider HFR, earning 11.9%. Their strong showing in 2020 partly reversed their underperformance relative to a portfolio of stocks and bonds over a one, three, five and 10-year period, according to Goldman Sachs Group Inc.
“Hedge funds have come back with a vengeance,” said Kieran Cavanna, whose New York-based Old Farm Partners invests $350 million largely in stock picking hedge funds for its clients.
Despite the comeback, major pressures remain. Clients have less patience with poor performance after years of high fees and weak returns. Interest from potential investors that animated the industry’s boom leading up to the financial crisis has shifted to private-equity and venture capital.
The funds that did well in 2020 bet early on an acceleration to online as people lived and worked remotely—then quickly shifted into a recovery trade betting on restaurants, hotels and travel. Hedge funds also benefited from the increased trading of individual investors who created more volatility in stock prices and, thus, opportunities for profit. Low rates boosted the stock market overall, too.
For Woodson, which gained 15% in March when the S&P 500 lost 12.5%, existing bets that physical stores would suffer while e-commerce thrived helped. So did a stake in fitness company Peloton Interactive Inc., which surged more than 300% this year through November.
Here are some other hedge-fund managers who had banner years, based on interviews with their clients and other people familiar with the firms:
Glen Kacher, 49, started focusing on the novel coronavirus in early March after learning how rapidly it spread on cruise ships. He put on a series of bets against travel-related companies, including hotels and airlines, and made 10% in March. He quickly pivoted to betting on companies including online furniture seller Wayfair, Singapore-based Sea Ltd. and cloud commerce platform Shopify Inc., companies whose stock price soared as people stayed and worked at home. The moves earned Light Street a 46.8% gain through November and helped pushed assets to $2.7 billion.
Bets on private companies supercharged the performance of Daniel Sundheim, 43, a former Viking Global investment chief and minority owner of the NBA’s Charlotte Hornets. He earned 54.1% through November for D1. Three of his private investments—software company Snowflake Inc., videogame software company Unity Software Inc. and dialysis company Outset Medical Inc. —went public this year. It also helped that D1 was a big investor in private grocery-delivery company Instacart Inc., which swelled in value. Mr. Sundheim also scooped up beaten-down shares of travel and aerospace companies he thought would eventually benefit from a pent-up demand for experiences, including plane-maker Airbus SE and theme-parks operator Walt Disney Co. D1’s assets have climbed to $20 billion.
A focus on opportunities and disruption created by the internet paid off this year for Tiger’s Charles “Chase” Coleman, 45, who had a portfolio of e-commerce giants, online payments companies and cloud businesses when the pandemic struck. By November he was up 37%. Tiger added to existing stakes in companies like Microsoft Corp. ; cybersecurity company CrowdStrike Holdings Inc. and business software giant Salesforce.com Inc. Some tech investors have expressed concern about a bubble, but Tiger in an Oct. 30 client letter suggested it was too early to sell “the best growth companies.” The longtime China investor also bought JD.com Inc. and Alibaba Group Holding Ltd. , believing China would navigate through Covid-19 better than the U.S. and Europe because of its political system and experience with past viruses. Its biggest winner was home-solar company Sunrun Inc. The firm, which also manages private-equity funds, had $48 billion in assets at the end of November.
Theleme was down 12% for the year through September, but a 38% gain in November turned its fortunes around. A big reason was a decade-ago discovery by Theleme’s Patrick Degorce, a 51-year-old French native, of a little-known biotech company named Moderna Inc. He found it as he searched for a cure for his wife’s terminal cancer. This year Moderna developed a Covid-19 vaccine that was approved for U.S. use; its shares have soared 680% through November. Theleme was up 20.6% through November, pushing its assets up to $3.5 billion.
Gavin Baker’s fledgling tech-focused hedge fund bet big on payments company Square Inc. in March and other businesses the former Fidelity Investments portfolio manager thought would benefit from social distancing. But spooked by ever-rising tech valuations and confident in ongoing vaccine efforts, the 44-year-old Mr. Baker trimmed some of his more expensive tech holdings over the summer for shares in retailers and travel companies he thought would benefit when the economy reopened. “The ‘Roaring 20s’ followed World War I and the Spanish Flu,” Mr. Baker tweeted in November. The strategy earned Atreides 58% through November and helped nearly triple assets to $1.2 billion.
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Former Third Point analyst Jamie Sterne, 33, likes to invest in disrupters and bet against the disrupted. Longstanding bets against bricks-and-mortar retailers, cable networks and energy helped protect Skye against losses in March, while an existing stake he upped in Microsoft, Skye’s biggest position, contributed to gains. He also wagered on an eventual economic recovery by purchasing shares of Disney and Uber Technologies Inc. He lost just 1.6% in March and was up 63.8% through November, pushing assets to $3.2 billion.
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