US Hedge Funds Beat Chinese Competitors In Their Own Market! 👊

🐺 Hi pack-mates,

This is Howling Markets, the hedge fund that will exponentially increase the returns of your financial market knowledge!

Today we will be covering:

• Education: What Is a Hedge Fund? 💰

• OKB Gets Hit By a Flash Crash And Tumbles 50% Down 📉

• US Hedge Funds Beat Chinese Competitors In Their Own Market 👊

• Equity and Debt Markets Daily Update ⚖️

• And more!

Market Watch 👀

What is a Hedge Fund?

Hedge funds are commonly considered riskier mutual funds that are able to generate higher returns. But, despite the fact that there is some truth in this common belief, the reality is slightly different.

Hedge funds are limited partnerships of private investors whose money is pooled and invested by a fund manager. However, being a partnership and not a mutual fund company, this investment pool is unregistered and as a result, it can adopt quite a few characteristics that are not allowed to mutual funds. These characteristics include:

• Long-term commitment: Hedge funds usually perform long-term strategies and because of this they often require investors to pledge money for several years. Mutual fund shares, instead, must be redeemable at all times.

• Less disclosure requirements: mutual funds must provide an informative document about the fees, goals, directors and activities of the fund, free of charge, to any new investor and hey must comply with periodic disclosure requirements. Hedge funds don’t.

• Riskier trading and investing activities: hedge funds are able to use leverage, open credit lines, short securities and much more.

• High Minimum Investment: Hedge funds require a minimum investment which ranges between $100,000 to $20 million, with an average minimum requirement of $1 million.

Additionally, the term hedge fund is a general and non-legal term that has been attributed to these investment pools because of the way they invest. Most hedge fund positions can be defined as “risk neutral” in the sense that they are not impacted by the overall market trend, regardless of whether it goes up or down 20%.

These positions are created by buying a security and then hedging the position by shorting another one which is highly correlated with the one you bought.

The idea behind this type of trade is to profit from the spread, meaning the difference in price, between the two securities which will move together regardless of the market trend. The benefit of this type of position is that it requires a very little upfront capital (resulting in a significant amount of leverage) because the cost of buying is offset by the returns of shorting.

OKB Gets Hit By a Flash Crash and Tumbles 50% Down

OKB is the native token adopted by OKX, the second largest crypto exchange in the world currently serving more than 50 million users globally. Despite OKB having a $2.8 billion market cap and being the fourth largest exchange token in the world, on Tuesday it got hit by a flash crash the plummeted the price by around 50%.

A flash crash is simply a market crash that occurs extremely rapidly, usually just a couple of minutes, where many holders decide to sell their shares, making the price drop.

Tuesday’s flash crash lasted just 3 minutes, but it was enough to let the price reach $25.10, a -51.91% drop with respect to the previous’ day closing price. However, right after the flash crash reached its end, the price surged once again to just around -10% with respect to yesterday’s price.

XKX was extremely fast to communicate through their social media page that they intend to reimburse the wrongful losses incurred by investors and traders due to the flash crash. As a result, they will communicate during the next 72h the optimal way in which they would like to fulfil their goal.

Today’s Howling Question

And now, it is time for our howling question!

Talking about hedge funds, we must definitely mention the Medallion Fund, created by Renaissance Technologies and initially managed by James Simons, one of the most influential fund managers ever.

Have you ever heard of this fund? Do you know what the average gross annual return of the fund has been between 1988 and 2018?

a)  +12%

b) +17%

c) +25%

d)  +39%

e)  +66%

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

US Hedge Funds Beat Chinese Competitors In Their Own Market!

In a past newsletter, we have discussed how foreign investors were running away from China after some serious concerns regarding the ability of companies to repay their debt. But is the Chinese investing landscape really that bad?

Well, I don’t know what you were thinking, but I know that it is even worse.

The CSI 300, the Chinese stock market index that tracks the performance of the 300 largest companies listed on the Shanghai Stock Exchange, is currently down -45.01% from its all-time high. But that is not all. The all-time high was set on the 16^th of October 2007.

Ever since the great financial crisis the Chinese stock market hasn’t been able to fully recover, despite a couple of big rallies, first in 2015 then in 2021, that were almost able to set a new all-time high.

Last year the CSI 300 concluded its 2023 performance down -11.38% and in this market enviroment the average yearly return of the 771 Chinese hedge funds was just +2.8%.

On the other hand, two US hedge funds operating in the Chinese market distinguished themselves for their exceptional performance. Bridgewater China Investment Management, the Chinese branch of the largest hedge fund in the world, concluded the year up +10.2%, while Two Sigma reported more than a 16% yield.

Their distinguished performance allowed them to triumph in this bear market, and as a result Bridgewater’s fund was able to quadruple its AUM and Two Sigma to double them over the past two years.

Equity and Debt Markets Update ⚖️

And now, our daily markets update!

On Tuesday, the stock market continued to add points to its all-time high by gaining an additional +0.29%. However, the day was characterized by a very small candle body and short wicks signifying very little trading volume related to the uncertainty of the future market’s direction.

Likewise, the bond market continued to move slightly higher with the US 10 year government bond yield adding +0.56% with respect to the previous day. However, bond yields moving higher could be an additional signal that the stock market does not have a lot of room on the upside before a slight correction.

Answer

The correct answer is e) +66%.

It is absolutely crazy to think about, but this hedge fund averaged a 66% gross return over a period of 30 years, meaning that if you would have given $1 in 1988 to the Medallion fund, you would have had $42,000 in 2021.

Howl-Worthy Memes 😂

🐺 See you next time!

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