Stock market growth in 2021 has had a moderate impact on the returns of the world's largest hedge funds. However, counterparts in the digital asset sector have largely outperformed stock market and digital asset indexes, according to The Block.
The average return for traditional hedge funds in 2021 was 10%, underperforming 2020 and the S&P 500, which was up 26.9%. The lower performance of hedge funds is attributed to the limited participation in their portfolios of large technology companies such as Apple and Tesla, which showed high returns in 2021.
At the same time, the average return of a crypto hedge fund in 2021 was 214%, according to data from Hedge Fund Research. With the exception of an explosive 2017, this is the largest since crypto hedge fund performance tracking began in 2015.
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Fund performance outperforms not only Bitcoin, which is up 48.5% in price, but also indexes such as the Bloomberg Galaxy Crypto Index at 153.39% and TCAP at 185%. At the same time, some cryptocurrencies have outperformed funds. For example, the price of Ether in 2021 grew by more than 400%.
Arca's chief investment officer, Jeff Dorman, believes the high performance of cryptocurrency hedge funds can be attributed to low competition compared to the stock market:
"TradFi Hedge fund portfolios look very similar, and passive indexes largely outperform active management in today's picked over market. Contrast that to digital assets, and there really isn't much competition at all yet."
According to Dorman, most Wall Street players focus exclusively on Bitcoin and Ether, leaving opportunities among mid-cap tokens for cryptocurrency funds:
"The sweet spot for active management is a growing and evolving investment opportunity set without growing competition, and that's where we stand today. Due to regulatory issues, size constraints, and lack of education, large TradFi funds have not penetrated digital assets in any meaningful way outside of buying a few private deals, and trading BTC and ETH."