In this article, we discuss the 10 best performing hedge funds of 2021. If you want to skip our detailed analysis of these hedge funds, go directly to the 5 Best Performing Hedge Funds of 2021.
Despite a relatively more volatile and generally tough investing environment for equity-based investment firms, especially in the context of the rise of retail investors and their short squeezes, hedge funds that focused on stocks returned, on average, close to 12.3% to investors in 2021, up nearly 2.3% when compared against peers in the industry. Data from LCH Investments, as reported by news agency Reuters, shows that the 20 best-performing hedge funds earned over $65 billion for clients in 2021. In 2020, all hedge funds combined earned $176 billion for clients.
However, even though the top performing funds managed nearly one-fifth of the $3.6 trillion in total assets under management for the industry, their combined gains still lagged behind the performance of the broader stock market. In 2020 and 2019, the 20 best-performing funds had made $63.5 billion and $59.3 billion for clients. Some of the funds that deserve a mention among the top performers include TCI Fund Management and Bridgewater Associates, which made gains of $9.5 billion and $5.7 billion respectively.
Some of the top holdings of the best performing hedge funds in 2021 included eBay Inc. (NASDAQ:EBAY), Netflix, Inc. (NASDAQ:NFLX), and The Walt Disney Company (NYSE:DIS), among others. Rick Sopher, the chief of LCH Investments, said that the returns for 2021 for hedge funds were “the highest ever”, topping the record gains of 2020 despite the threats of interest rate hikes and the resurgence of virus cases. Sopher noted that “low net exposure and a difficult environment for short selling” limited the returns for hedge funds.
Our Methodology
The hedge funds that registered the largest year-to-date (YTD) gains, based on data available with news platform Bloomberg by November 2021 were selected for the list. The exact YTD gains are mentioned alongside the top holdings and performance of each fund in 2021.
Data from around 900 elite hedge funds tracked by Insider Monkey was used to identify the number of hedge funds that hold stakes in each top holding.
Best Performing Hedge Funds of 2021
10. Millennium Management
YTD Gain as of November 2021: 12.1%
Millennium Management is an investment manager based in New York. It is led by Israel Englander, an investor and philanthropist with a personal net worth of over $10 billion. At the end of the third quarter of 2021, the fund managed more than $166 billion in assets. According to data from LCH Investments, Millennium Management posted a gain of around $6.4 billion in 2021. In 2020, Millennium Management had been on the top-end of the best performing hedge funds as well, posting a gain of $10.4 billion.
Israel Englander of Millennium Management
Millennium Management holds a large stake in Amazon.com, Inc. (NASDAQ:AMZN), a diversified tech firm with core interests in ecommerce. Among the hedge funds being tracked by Insider Monkey as of Q3 2021, London-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc. (NASDAQ:AMZN), with 3.9 million shares worth more than $12.8 billion.
Just like eBay Inc. (NASDAQ:EBAY), Netflix, Inc. (NASDAQ:NFLX), and The Walt Disney Company (NYSE:DIS), Amazon.com, Inc. (NASDAQ:AMZN) is one of the stocks that elite investors are buying.
In its Q1 2021 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Amazon.com, Inc. (NASDAQ:AMZN) was one of them. Here is what the fund said:
“Amazon.com, Inc. (NASDAQ:AMZN):We sold our last remaining stake in Amazon.com, Inc. (NASDAQ:AMZN) this quarter. Amazon was our longest-running investment holding, after having originally purchasing it at the inception of Hayden in 2014, at a price of ~$317.
I gave some details of how Amazon.com, Inc. (NASDAQ:AMZN) has progressed over these past 6.5 years in last year’s Q2 2020 letter, which partners can find here (LINK). The company has executed amazingly well over this tenure, with revenues up ~3.3x and since our initial purchase, and reported operating income up ~30x over that period.
Generally, I believe there are three reasons to sell an investment:1) we recognize our initial thesis is wrong (sell out as quick as possible), 2) we have a significantly higher returning opportunity to redeploy the capital into (sell-down to fund the new investment), or 3) the company is maturing and hitting the top part of it’s S-curve / business lifecycle, so the business has fewer places to reinvest its capital internally. As such, the future returns will likely be lower than the past. This investment thus becomes a “source of capital” in the future, as we fund earlier-stage investment opportunities.
In the case of Amazon.com, Inc. (NASDAQ:AMZN), we decided to sell due to the third scenario. I’m sure Amazon will continue to generate value for shareholders and continue to keep pace with the broader technology sector. However, I’m just not confident it’s as attractive an investment as when we first invested.
With ~51% of US households having an Amazon Prime account (and with very low churn), each of these households continuing to increase their annual spend with Amazon, and few / no real competitors in sight, Amazon is a dominant force that will only continue to accrue value as consumers continue to move from offline to online purchases for their everyday needs. Likewise, the “cash-flow machine” of Amazon Web Services is in a similar position of strength, with AWS now having ~32% market share and continuing to grow at +30% y/y. Because of this, I think Amazon.com, Inc. (NASDAQ:AMZN) is probably one of the safest investments in the technology sector today.
So why did we decide to sell the investment then? Simply put, Amazon is …”read the entire letter here]
9. Schonfeld Strategic Advisors
YTD Gain as of November 2021: 12.6%
Schonfeld Strategic Advisors is a hedge fund led by Ryan Tolkin. The fund operates from New York. At the end of September 2021, it managed over $9 billion in assets. Tolkin is one of the relatively younger managers on Wall Street, aged just 35 years-old. He has transformed Schonfeld from a family office into one of the most successful hedge funds in the US, averaging annual returns of more than 14% in the five years since it opened to outside capital. Tolkin formerly worked at Goldman Sachs.
Ryan Tolkin, CIO of Schonfeld Strategic Advisors
Schonfeld Strategic Advisors holds a large stake in Bio-Rad Laboratories, Inc. (NYSE:BIO), the company that markets life science research services. At the end of the third quarter of 2021, 38 hedge funds in the database of Insider Monkey held stakes worth $1.4 billion in Bio-Rad Laboratories, Inc. (NYSE: BIO), compared to 41 funds in the previous quarter, holding stakes in the company worth $1.2 billion.
8. D1 Capital Partners
YTD Gain as of November 2021: 17%
D1 Capital Partners is an investment firm based in New York. It is chaired by Daniel Sundheim who founded it in 2018. Sundheim has a personal net worth of more than $2.5 billion and his hedge fund manages more than $17.8 billion in assets, as per the 13F filings from Q3 2021. The fund made headlines last year after losing nearly 20% of its capital, roughly $4 billion, during the GameStop short squeeze. Within three months, however, it had recouped nearly 90% of this loss.
One of the top holdings of D1 Capital Partners is Microsoft Corporation (NASDAQ:MSFT), the Washington-based tech giant. Among the hedge funds being tracked by Insider Monkey in Q3 2021, Washington-based investment firm Fisher Asset Management is a leading shareholder in Microsoft Corporation (NASDAQ:MSFT), with over 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.”
7. Pershing Square
YTD Gain as of November 2021: 20.1%
Pershing Square is a hedge fund that operates from New York and is led by Bill Ackman, one of the richest investors in the US, with a personal net worth of over $3 billion. The fund gained more than 5.7% in December and finished the year with a gain of close to 27%, whereas the year-to-date gain as of November 21 clocked in at 20.1%. So far this year, as Ackman builds a new stake in Netflix, the hedge fund has lost more than 13.8% as the share price of the streaming giant nose-dived. However, Ackman has told investors that his fund loves the business model and industry context for Netflix and admires their management team.
Pershing Square has invested heavily in Lowe’s Companies, Inc. (NYSE:LOW), the North Carolina-based home improvement retailer. At the end of the third quarter of 2021, 60 hedge funds in the database of Insider Monkey held stakes worth $5 billion in Lowe’s Companies, Inc. (NYSE:LOW).
In its Q2 2021 investor letter, Pershing Square Holdings, an asset management firm, highlighted a few stocks and Lowe’s Companies, Inc. (NYSE:LOW) was one of them. Here is what the fund said:
“Since the onset of the COVID-19 pandemic, Lowe’s Companies, Inc. (NYSE:LOW) has experienced a significant acceleration in demand driven by consumers nesting at home, higher home asset utilization and the reallocation of discretionary spend. In the three years since Marvin Ellison became CEO, the company has executed a multi-year transformation plan to bolster Lowe’s retail fundamentals, reduce structural costs, expand distribution capabilities, and modernize systems and the company’s online capabilities. This transformation has allowed Lowe’s Companies, Inc. (NYSE:LOW) to meet consumers’ needs during this highly elevated period of demand, and positioned the company for continued success and accelerated earnings growth.
In the second quarter, Lowe’s Companies, Inc. (NYSE:LOW) reported U.S. same-store-sales growth of 2.2%. Growth was bolstered by strength from the critical Pro consumer, where Lowe’s reported growth of 21%, off setting moderating do-it-yourself (“DIY”) demand. While DIY demand has receded from peak-COVID-19 periods, Pro customer demand has accelerated as consumers engage Pro’s for larger renovation projects.
Notwithstanding the headline growth figure, which is impacted by comparisons to COVID-19-aff ected months from spring of 2020, demand remains extremely elevated relative to baseline 2019 levels. July same-store-sales, the most recent full month for which the company has provided disclosure, were up 31.5% on a two-year basis and management indicated August month-to-date results are substantially similar. More significantly, Lowe’s Companies, Inc. (NYSE:LOW) reported Pro growth of +49% on a two-year basis in Q2, evidence that Lowe’s focus on the Pro is bearing fruit. Share gains with the critical Pro customer will provide a tailwind to growth that should allow Lowe’s to outperform market-level growth going forward.
Even as the robust demand experienced during the height of COVID-19 stabilizes at a new base, the medium and longer-term macro environment remain very attractive for the home improvement sector and Lowe’s Companies, Inc. (NYSE:LOW) in particular. This favorable context for the sector is evidenced by consumers’ enhanced focus and appreciation of the importance of the home, higher home asset utilization, rising home prices, historically low mortgage rates, an aging housing stock, strong consumer balance sheets, and the general lack of new housing inventory.
Against this backdrop, Lowe’s Companies, Inc. (NYSE:LOW) is focused on taking market share and expanding margins. Pro penetration today is still only 25% of revenue as compared to Lowe’s medium-term target of 30% to 35%, providing a runway for continued above market growth. Management continues to execute against various operational initiatives (Lowe’s “Perpetual Productivity Improvement” program) designed to improve the customer experience while enhancing the company’s margins and long term earnings power. The company’s long-term outlook implies significant opportunity for continued margin expansion and earnings appreciation as it executes its business transformation.
Lowe’s currently trades at approximately 17 times forward earnings. Home Depot, its closest competitor, trades at approximately 22 times forward earnings despite Lowe’s superior prospective earnings growth. We find this valuation disparity to be anomalous in light of Lowe’s strong execution and potential for further operational optimization.”
6. Heard Capital
YTD Gain as of November 2021: 23%
Heard Capital is an investment firm based in Chicago. It is chaired by William Heard and manages over $515 million in assets as of the close of the third quarter of 2021. Heard previously worked at Stark Investments as a special situations analyst, focusing on industries such as telecom, media, tech, and financials. He launched his own fund in 2011 and has had mixed success in the industry so far, managing gains of more than 6% annually since inception. In 2020, the annual returns stood at 7%. In 2021, his High Conviction Long Only Fund, a flagship offering, posted gains of over 21%.
One of the premier holdings of Heard Capital is BlackRock, Inc. (NYSE:BLK), an investment management company. At the end of the third quarter of 2021, 44 hedge funds in the database of Insider Monkey held stakes worth $1 billion in BlackRock, Inc. (NYSE:BLK), compared to 47 funds in the the preceding quarter, holding stakes in the company worth $1.2 billion.
In addition to eBay Inc. (NASDAQ:EBAY), Netflix, Inc. (NASDAQ:NFLX), and The Walt Disney Company (NYSE:DIS), BlackRock, Inc. (NYSE:BLK) is one of the stocks that institutional investors are flocking to.
In its Q1 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and BlackRock, Inc. (NYSE:BLK) was one of them. Here is what the fund said:
“During the quarter, we initiated a position in BlackRock, Inc. (NYSE:BLK), the world’s largest investment manager with $9 trillion in assets under management. BlackRock offers an array of products across equities, fixed income, alternatives, and cash management to institutional and retail investors worldwide. About one-quarter of BlackRock’s assets under management is actively managed, and the rest is in passive index funds and iShares-branded ETFs. The company offers technology services including the investment and risk management platform, Aladdin, as well as other advisory services and solutions. Over the five years ending December 31, 2020, assets under management and earnings per share grew at compound annual growth rates of 13% and 12%, respectively.
We believe BlackRock, Inc. (NYSE:BLK) is well positioned for continued growth given its diverse product offering, global distribution, brand recognition, and capable management team. With most of its assets in index funds and ETFs, BlackRock, Inc. (NYSE:BLK) is a prime beneficiary of the ongoing shift to passive investing. BlackRock, Inc. (NYSE:BLK) also benefits from increasing demand for sustainable investment strategies and “barbell” strategies that use a combination of low-cost index funds, active and illiquid alternatives products. BlackRock fits squarely within our Tech-Enabled Financials theme given its longstanding commitment to innovation and proprietary technology platform, Aladdin, which serves as the investment and risk management system for both BlackRock, Inc. (NYSE:BLK) and a growing number of institutional investors around the world. We expect BlackRock’s earnings per share will continue to grow at a double digit annual rate over a market cycle through a combination of mid-single-digit growth in assets under management from net inflows, market appreciation, low to mid-teens revenue growth in technology services, modest margin expansion, and share repurchases.”
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Disclose. None. 10 Best Performing Hedge Funds of 2021 is originally published on Insider Monkey.
