It is not easy out there
If one were to simply watch the price action in the S&P 500 index, the conclusion would be equities are resilient, as the index only drew down by an eye watering 1.5% intra-month in September, before bouncing back to finish around flat.
The view
Therefore, it makes sense that in such a backdrop the expectation is for Equity Long/Short strategies to quietly cultivate PNL. However, September and Q3 for that matter were nothing but subdued for Equity Long/Short strategies.
Generating returns from fundamentally driven longs and shorts became quite difficult in recent weeks. Goldman Sachs estimates their global Equity Long/Short coverage universe is down 0.55% MTD with much of the adversity coming from the short side.
Given the fluid macro backdrop, there is not one critical factor that can explain the struggles, leaving hedge fund investors perplexed by the weak returns experienced by some managers.
Typically, these “fundamental dislocation” moments create a multi-quarter runway of positive PNL ahead, but the direct aftermath is the most frustrating.
Global markets & economic data
- US
Non-Farm Payrolls missed massively to the downside and the Unemployment Rate ticked up to 4.2%. October JOLTS Job Openings contracted in August and has trended lower since April.
- Switzerland/Europe/UK
Swiss KOF Leading Indicators index was well above expectations, registering its sixth consecutive monthly rise. German September Inflation hits 3.3% annualized, the highest levels since December 2023. UK home prices rose at the slowest pace since December 2025.
- Japan/China
Japan’s Tankan index hit 24 in Q3, the highest levels since Q1 2018. Chinese September Manufacturing PMI was stronger than forecast.
Disclaimer: This material has been prepared by MASTERPIECE ADVISORS for informational purposes only and should not be construed as financial advice. Investments in hedge funds are speculative and involve a high degree of risk. This material is confidential and may not be disclosed without the express written approval of MASTERPIECE ADVISORS.
Weekly market notes every Friday from Aaron Sweeney after the closing bell.