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Among the areas the fund believes are attractive are financial
companies, which should benefit from rising interest rates,
according to people familiar with the firm’s thinking.
The fund also believes that energy companies' strong balance
sheets will allow them to buy back stock and pay higher
dividends -- making them an attractive option -- especially
after a selloff in oil hit many of their shares -- the people
said.
The S&P 500 is down nearly 4% since the day before Thanksgiving,
when Omicron fears initially began roiling markets. The index is
still up 22% for the year, near record highs.
Cinctive pursues a market neutral or risk minimizing strategy
where teams of portfolio managers try to exploit price
differences by being long and short equal amounts.
Its managers reacted to recent volatility by betting against
stocks that would benefit from the economy reopening even though
executives are not expecting a new lockdown in the United
States. They moved to utility shares, consumer staples and other
so-called defensive stocks.
Healthcare, energy and technology bets have helped the firm
return 9% over the last 12 months, a person familiar with the
fund said. The firm launched in September 2019 with $1 billion
in commitments.
The benchmark HFRI Equity Market Neutral Index gained 6.2% in
the first 10 months of the year. The market neutral strategy
helps diversify portfolios and has been popular as a bond
replacement strategy at a time of low interest rates.
November however was a tough month for hedge funds with early
data from PivotalPath showing that the average fund lost between
1.6% and 2%, marking the worst performance since March 2020.
People familiar Cinctive's portfolio said it navigated the
extreme volatility spurred by the initial wave of the
coronavirus in March 2020 by having tracked supply chain issues
and the health impact early and having cut risk dramatically.
While investors added fresh cash to hedge funds this year after
taking money out in 2020, industry analysts at eVestment note
that the pace of inflows has begun to slow in the last weeks.
Earlier this year Cinctive launched a risk arbitrage strategy
and reunited with former colleague Mitch Nordon. Companies are
now searching for weaker rivals and M&A activity in the United
States alone surged 139% to $2 trillion in the first nine months
of the year, Refinitiv data shows.
Cinctive founders Richard Schimel and Larry Sapanski, who
previously ran Diamondback Capital Management, wanted to give
their investment teams more flexibility and let portfolio
managers invest in smaller companies, executives and investors
said.
Some 70% of the firm's returns were generated from investments
in small and mid-sized companies.
The firm now employs 50 investment professionals and a total of
70 people, up from 38 when the firm launched.
(Reporting by Svea Herbst-Bayliss; Editing by Ira Iosebashvili
and Alison Williams)
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