In this article, we discuss 10 worst performing hedge funds of 2021. If you want to skip our detailed analysis of these hedge funds, go directly to 5 Worst Performing Hedge Funds of 2021.
Although 2021 was marked by a strong economic recovery, the momentum around the reopening was hit by supply chain constraints and rising inflation. As a result of the rise in inflation, there was intense speculation around interest rate hikes and even a looming market crash. In such an environment, growth stocks suffered, leading to a broad correction in value for firms that operate in the tech sector. Since this was the first major financial crisis in more than a decade, this correction hit institutional investors with growth-heavy portfolios.
According to data from research firm HFR, hedge funds that placed stocks at the center of their investment strategies gained slightly below 12% in 2021. This was poor when compared against the returns of the benchmark S&P 500 during the time, which gained around 29%. The NASDAQ Composite also registered gains of 22% in 2021. The hedge fund industry managed assets close to $4 trillion in 2021, but most hedge fund managers gravitated towards tech stocks in hopes of higher returns, taking advantage of low interest rates.
Market experts predict further pain for growth-heavy portfolios in 2022 as the Fed prepares to raise interest rates. Greg Dowling, the investment chief of consulting firm Fund Evaluation Group, told WSJ earlier this year that the sell-off in growth stocks had been “brutal and pretty violent” but also brought opportunity for shrewd investors. Some of the top holdings of the worst performing hedge funds of 2021 included Mastercard Incorporated (NYSE:MA), StoneCo Ltd. (NASDAQ:STNE), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), among others.
The hedge funds that registered losses in 2021, based on data available with news platform Bloomberg by November 2021, were selected for the list. The exact YTD losses are mentioned alongside the top holdings and performance of each fund in 2021. The losses for the hedge funds ranked tenth and ninth are picked from outside Bloomberg data.
Data from around 900 elite hedge funds tracked by Insider Monkey in Q3 2021 was used to identify the number of hedge funds that hold stakes in each top holding of the fund.
Image By peshkov – Adobe Stock
Worst Performing Hedge Funds of 2021
Quarterly Loss as of September 2021: 28.5%
Centerbridge Partners is a private equity firm based in New York. It was managed by Mark Gallogly, an investor with a background in politics and civic engagement, until late 2020. The fund operates as a multi-strategy firm with significant investments in public companies. Gallogly served in an advisory role in two Obama administrations. At the end of the third quarter of 2021, the fund was placed near the bottom of a list of the worst-performing hedge funds of the year, according to data from Insider Monkey.
Centerbridge Partners holds a large stake in GoHealth, Inc. (NASDAQ:GOCO), a digital health firm. Among the hedge funds being tracked by Insider Monkey, Chicago-based Harris Associates is a leading shareholder in GoHealth, Inc. (NASDAQ:GOCO), with 14 million shares worth more than $71 million.
Just like Mastercard Incorporated (NYSE:MA), StoneCo Ltd. (NASDAQ:STNE), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), GoHealth, Inc. (NASDAQ:GOCO) is one of the growth stocks on the radar of elite investors.
YTD Loss as of December 2021: 26%
Light Street Capital is an investment management firm based in California. It is managed by Glen Kacher. Kacher is part of a group of investors known as Tiger Cubs, having previously worked at Tiger Management. According to a report in the Financial Times, Light Street was one of the funds hit hardest by the GameStop short squeeze at the beginning of the year. The flagship fund of Light Street lost 3% during the first quarter and was down nearly 20% by the middle of the year. By the end of the year, the fund had losses totaling nearly 26%, as per WSJ.
Glen Kacher of Light Street Capital
Light Street Capital holds a large stake in Sea Limited (NYSE:SE), the Singapore-based firm with interests in digital entertainment, ecommerce, and fintech. At the end of the third quarter of 2021, 117 hedge funds in the database of Insider Monkey held stakes worth $14 billion in Sea Limited (NYSE:SE), up from 104 the preceding quarter worth $12 billion.
In its Q4 2020 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Sea Limited (NYSE:SE) was one of them. Here is what the fund said:
“Sea Limited (NYSE:SE): When I wrote our Q4 2019 letter about Shopee launching a Brazilian business, it seemed very few investors or competitors knew or cared.
A year ago, I wrote: “This is the first test for the ecommerce marketplace outside of its Southeast Asia home base. Will the platform’s fun and addicting features overcome a lack of local knowledge and presence? It’s hard to predict consumer behavior and how accepting users will be to a platform – especially one that’s a foreign culture and 10,000 miles away. The only way to know is to experiment and watch the results closely.
Empirically though, it seems that what consumers find entertaining in Asia, generally translates well to Brazil (and Shopee really is as much an entertainment platform, as an ecommerce one).
For example, just look at the top 10 free apps in Brazil. Two are utility messaging apps, so we’ll ignore those (WhatsApp and
Facebook Messenger). But among the remaining eight apps, they’re all entertainment based and overwhelmingly Asian. Four are from China (Kwai, TikTok, VStatus, TikTok Lite), two from Singapore (Free Fire and Shopee, both Sea Limited (NYSE:SE) apps), and one from the US (Instagram). The commonality is that all these apps are experts at creating addictive habits, as evidenced by their personalized recommendations, avg usage time, number of logins per day per user, etc.” (LINK)
I distinctly remember having conversations with several Brazilian hedge funds as recently as last summer who were investors in Sea Ltd. When the topic of Brazil came up, many of them didn’t even know Shopee was operating in their own backyard!
Part of this stems from the fact that Shopee..”[read the entire letter here]
YTD Loss as of November 2021: 1.9%
Lone Pine Capital is an investment firm based in Greenwich. It is led by Stephen Mandel, an investor whose personal net worth is around $4 billion. Two of the biggest funds of Lone Pine suffered huge losses in the fourth quarter of 2021 as the specter of inflation and rising interest rates hammered growth stocks. This was one of the major reasons why the investment firm finished the year with negative returns. At the end of the third quarter of 2021, the portfolio value of the fund stood near $30 billion.
Stephen Mandel of Lone Pine Capital
One of the top holdings of Lone Pine Capital is Shopify Inc. (NYSE:SHOP), the Canada-based e-commerce giant. Among the hedge funds being tracked by Insider Monkey, Cathie Wood’s ARK Investment Management held a prominent stake in Shopify Inc. (NYSE:SHOP) as of Q3 2021, with 922,608 shares worth more than $1.25 billion.
In its Q4 2020 investor letter, RGA Investment Advisors, an asset management firm, highlighted a few stocks and Shopify Inc. (NYSE:SHOP) was one of them. Here is what the fund said:
“While we are pleased with the results of these specific purchases, we made a huge mistake of omission at that time. This mistake will likely be one of the biggest we ever make in our careers. Specifically, we did deep work on Shopify Inc. (NYSE:SHOP) and loved everything about the business qualitatively. Unfortunately, we ultimately found ourselves unable to get comfortable with the numbers.
We built our model up from the key performance indicators (KPIs) that drive revenues. Our last save of the model dated 8/3/2016 looked as follows: (Page 2). These numbers seemed right from everything we understood about the company. While we tend not to rely on sell-side consensus estimates before finishing our own workup of the business, we do give them a look once we feel comfortable with how we have approached our analysis as it is often helpful to get a sense of what the average participant in the market expects the business to do. With Shopify, the sell-side consensus was so far from where our numbers were shaking out, it seemed almost impossible that we were basing our analysis on the same underlying information. Our natural next step was thus to take the sell-side consensus data and work backwards to figure out the implied expectations on each of the key revenue drivers. Here is what the sell-side consensus looked like as at the time: (Page 2).
Shopify’s actual revenues for 2016-2018 ended up being $389m, $673m and $1,073m. In other words, not only were we justifiably far more optimistic than the consensus estimate, but we also were far too conservative in terms of how the company actually performed.
The nature of our job as securities analysts is to take calculated risks, in an uncertain world where the “true” answer is inherently unknowable before the fact. We operate in what many call an “efficient market” and subscribe to the belief that for the most part, markets are generally pretty efficient and it requires differentiated analysis to find a return above what the market can offer. So why did we pass on Shopify Inc. (NYSE:SHOP) despite 1) deeply believing in the qualitative elements of the business; and, 2) seeing a meaningful gap between what we expected and the consensus expected? The answer is unfortunate but simple: we lacked confidence in ourselves. It was the first time we truly experienced such a stark divergence between our expectation and the consensus and the result was the inclination was to pound ourselves over the head with how dumb we must be, rather than the other way around. We also learned that the truly great companies use their strong business advantages, smart management and execution to raise the bar every step along the way. Obviously this is a cycle which cannot continue ad infinitum, but especially in instances where our qualitative work identifies the inherent strengths in the business and the numbers shake out to be quite fair, the consistent “raising of the bar” can be a potent driver for the stock.
Please do not judge us too harshly for our mistake on Shopify Inc. (NYSE:SHOP), for we have from the very beginning made one commitment above all else to both our clients and ourselves: that we will be better today than we were yesterday, and better tomorrow than we are today. While this mistake was quite costly, it ended up being a key confidence and process builder.”
YTD Loss as of November 2021: 3.9%
Voloridge Investment Management is an investment firm that operates from Florida. At the end of September 2021, the firm had a portfolio value of more than $15 billion, with investments concentrated in the technology sector. Bloomberg data shows that the firm finished the year down 3.9% compared to 2020, one of a handful of institutional investors who could not manage positive returns in 2021. Voloridge Investment Management manages a small equity portfolio with just five holdings, most of which are in the growth domain.
Voloridge Investment Management has invested heavily in Microsoft Corporation (NASDAQ:MSFT), the Washington-based tech giant. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Microsoft Corporation (NASDAQ:MSFT), with 25 million shares worth more than $7 billion.
In its Q1 2021 investor letter, Polen Capital, an investment management firm, highlighted a few stocks and Microsoft Corporation (NASDAQ:MSFT) was one of them. Here is what the fund said:
“We have written extensively about Microsoft Corporation (NASDAQ:MSFT) in recent commentaries. It was our leading contributor last year and one of our largest weightings within the Portfolio. Microsoft Corporation (NASDAQ:MSFT) continues to experience business momentum through several dominant, essential, and competitively advantaged businesses, like Office 365 and Azure. The markets it competes for are enormous, which gives the company the ability to compound at scale. In the past quarter alone, the company generated over $40 billion in revenue, representing a 17% growth rate. The inherent operating leverage in Microsoft’s business model continues and led to 34% earnings growth this past quarter. Despite the broad rotation we saw in the first quarter and Microsoft’s robust performance in 2020, we think its business fundamentals continue to exhibit strength, and Microsoft Corporation (NASDAQ:MSFT) stock continues to reflect the fundamentals.”
YTD Loss as of November 2021: 6.1%
Viking Global is a hedge fund based in Connecticut. It is chaired by Andreas Halvorsen, a Norway-born money manager with a personal net worth of close to $6 billion. In a letter to investors in January this year, Halvorsen acknowledged the mistakes, like “poor portfolio construction” that had led to the fund posting its “worst-ever” annual return since it was founded, pinning the blame on the COVID-19 pandemic. Since 1999, Viking Global has finished just four years down in the red, and 2021 was the worst down year for the fund by some margin.
Ole Andreas Halvorsen of Viking Global
One of the premier holdings of Viking Global is T-Mobile US, Inc. (NASDAQ:TMUS), a communications firm. Among the hedge funds being tracked by Insider Monkey, billionaire Warren Buffett’s Berkshire Hathaway held a significant stake in T-Mobile US, Inc. (NASDAQ:TMUS), with 5.2 million shares worth approximately $670 million.
Along with Mastercard Incorporated (NYSE:MA), StoneCo Ltd. (NASDAQ:STNE), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), T-Mobile US, Inc. (NASDAQ:TMUS) is one of the stocks high on the investment radar of hedge funds.
“The portfolio’s quality bias and valuation discipline have generated compelling returns over time with typically strong relative results in more challenging environments as it did through the first three quarters of 2020. However, that same quality bias tends to create a more challenging relative performance environment for the Strategy during periods of sharp economic acceleration, which tend to benefit stocks that are more commodity linked or of lower quality. This has been the case during the vaccine- and stimulus-driven rally experienced late last year and during the most recent quarter. Sectors that lagged in the quarter included communication services, where T-Mobile US, Inc. (NASDAQ:TMUS) trailed after generating robust returns earlier in the recovery.”
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Disclose. None. 10 Worst Performing Hedge Funds of 2021 is originally published on Insider Monkey.