London (CNN Business)In the early weeks of 2021, amateur traders backing meme stocks like GameStop (), AMC Entertainment ( ) and BlackBerry ( ) captured the world’s attention.
As spectacular gains triggered huge losses for hedge funds that bet the shares would fall, a David versus Goliath narrative took hold. Finally, the little guy was triumphing against The Man, which had been cashing in on a rigged system for decades.
In the end, however, it turns out Goliath did pretty well.
Global hedge funds reporting data to Eurekahedge, a research group, saw returns of nearly 5% in the first quarter, roughly on par with the broader market. It was the best start to the year for hedge funds since 2006.
“It was definitely a good quarter for returns. Most hedge funds were up,” Robert Sears, chief investment officer at Capital Generation Partners, told me.
The gains weren’t spread evenly, of course. Just as some nonprofessional traders got extremely wealthy off their risky GameStop positions, hedge funds that shorted popular names took huge hits.
Melvin Capital, which was a major GameStop short-seller, was down 49% during the first three months of the year, a source familiar with the matter told CNN Business.
Then there was the implosion of Archegos Capital, which collapsed after making big wagers on media stocks using extreme leverage and complex derivatives.
But generally speaking, hedge funds made the turmoil work to their advantage. When markets are choppy, investors that take a more active role in managing their portfolios have the chance to make bold plays. That worked out particularly well for those who favored stocks thought to be undervalued over high-growth tech names, according to Sears.
Source: CNN Business