In a year fraught with financial uncertainty and volatile markets, top hedge fund managers managed to come out of 2020 with about 20 billion dollars in their pockets. Larger hedge funds, in particular, performed very well over 2020.
2020’s Top Managers
Despite the stock market crash in early 2020 and the downturn of the economy shortly after, hedge funds were still able to perform very well. The top hedge fund manager of the year was Israel Englander, who is the manager of Millennium Management, one of the top hedge funds in the world. Englander earned $3.8 billion in 2020 and Millennium finished the year with returns of 25.8%. Coming in second, Jim Simons, the founder of Renaissance Technologies, earned $2.6 billion in 2020 and Renaissance completed a very successful year with returns of 76%. The list goes on, with many more members of the hedge fund elite making billions in a year of economic downturn.
Hedge Fund Strategies in 2020
Hedge funds clearly performed incredibly well in 2020, but how were they able to do it? The main strategies they used were investing in the technology and healthcare sectors. Healthcare is an obvious one: hedge funds knew that eventually vaccines would be created and that in the meantime, there would be significant demand for healthcare services. Healthcare-focused funds had returns of nearly 26%. Technology stocks rallied during the pandemic because everyone had to stay home. People had to purchase technology to work remotely or stay in touch with friends. People also used using technology to buy groceries to avoid the high risk of going outside. Technology focused funds had returns of almost 28%. However, hedge funds did not make the most money off of healthcare or technology stocks. Their best strategy was shorting energy stocks, mainly oil. Hedge funds predicted the global shutdown would immensely slow down drilling and refining. This earned energy focused hedge funds returns of 26.8% in 2020. Despite the recession, hedge funds were able to pick the right sectors and weather the storm.
In addition to the strategies the funds employ, they have access to a plethora of data that helps them make their decisions. Most hedge funds purchase data streams from vendors. They purchase your personal data, including credit card and debit card data to discover where consumers were spending their money. This data can be as specific as what your groceries are to what stores you shop at. For example, if hedge funds saw in their purchased data this week that 1 million people shopped at locations of Store A and only 500,000 people shopped at locations of Store B, they may decide to buy shares of Store A. The normal, individual investor won’t have access to data anywhere near that size and accuracy.
Despite market volatility and an economy going downhill, hedge fund managers managed to come out on top. With massive advantages over average investors and highly trained traders working for them, these managers were able to turn a gigantic profit. 2020 proved that even stock market crashes cannot stop them, so it’s unlikely these managers will stop making billions anytime soon.