Visualizing Hedge Fund Industry Performance in 2015

Contributed by Zi Jin. She is currently in the NYC Data Science Academy 12 week full time Data Science Bootcamp pr... taking place between April 11th to July 1st, 2016. This post is based on her first class project -  (due on the 2th week of the program).


Hedge fund is an important investment diversification tool for institutional investors. Large institutions such as universities and hospitals invest in hedge funds as a continuous funding source for their institution operations. The performance of hedge funds has a critical impact on their overall investment portfolio.

“Hedge funds hopefully will have two benefits — adding return to the portfolio and the other is reducing volatility and downside risk to the portfolio," Don Steinbrugge, managing partner of the Richmond, Virginia-based Agecroft Partners, a marketing and consulting firm for the hedge fund industry, said.

Here, I analyze hedge fund industry performance by sector in 2015 using public data. The propose of this analysis is to provide insights into the industry performance.

The questions I try to answer here are:

  • How funds performed in each sector?
  • Who were the top performers in each sector?
  • What was the overall fund performance?


  • The universe is returns of Long Only Portfolio for 850+ funds based on Public SEC Regulatory Quarterly Filings (13F & D filings) in 2015
  • The sectors these funds invested in are Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, and Materials


1) How Funds Performed in Each Sector?

Aggregating fund returns by sector, we see that there was a significant dispersion in returns by sector. On average, Consumer Staples, and Health Care performed relatively better than other sectors. While Energy had the most disappointing performance among the sectors.

Plotting sector returns in a density graph allows us to put return, return density, and sector on the same playing field to effectively understand how performance distribution varies among sectors. Here we see that the majority of sectors had returns centered around zero, meaning that most of the funds performed similarly in a given sector.

The best performing sector was Consumer Staples, and the worst performing sector was Energy, which validated our previous sector overview analysis. Financials was the sector in which funds performed the most uniformly.


2) Who were the top performers in each sector?

After an overview of the sector performance, we may be curious about who the top performing funds in each sector were. To select top performing funds, we use following selection criteria:

  • Sharpe ratio >0 (risk adjusted return)
  • Number of positions > 10
  • Average weight > 10%
  • Percentage of win > 50% (the number of times a fund picks a stock that is winner vs. loser in a sector)
  • Fund return > sector benchmark return (fund must have outperformed its relative US benchmark)
    • Here we use SPDR ETF’s as the relative US benchmark for each sector

By following our selection criteria, we found below top performing funds in each sector:

Consumer Discretionary:

Consumer Staples:



Health Care:


Information Technology:


Plotting above funds in a density graph, we see that while most sectors had returns centered slightly above zero, the relative landscape didn't change much comparing to our previous overall sector return distribution. It's worth noting that even among the best performing Energy funds, their average return was negative last year.

3) What was the overall fund performance?

Putting it all together, we get a view of the overall fund performance in 2015.

From this graph, we see that the majority of funds performed similarly. Most funds didn't make money last year. There was also significant dispersion in returns among hedge funds. If you glance at the top performers versus the bottom performers, the range of returns were very wide. Some funds were up more than 100% while others were down 100%.

The poor performance tends to be followed by investors pulling funds. As we have seen during a volatile first quarter in 2016, investors pulled $15 billion in capital from hedge funds, making it the largest quarterly outflow since the second quarter of 2009, according to a report from Hedge Fund Research.



The overall hedge fund industry performance in 2015 was disappointing, given that the majority of funds were losing money. Since there were so many players in the industry and most of them performed similarly, it caused concern that if one of the highly levered players had a rough run and took down risk, they would be collateral damage. Sectorwise, Consumer Staples and Health Care performed relatively well. Energy was dragging fund returns.

The disappointing results may cause investors to pull funds. But there aren't many other attractive alternatives for them to invest in this current low-return environment. It's up to the investors to do their homework when then allocate capital and assume this non-traditional risk.

Original Post : http://blog.nycdatascience.com/students-work/visualizing-hedge-fund...

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