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Despite a small hiccup at the end, thanks to a surprise from the Federal Reserve with a revised rate cut expectation for next year due to slowing disinflation, the markets are closing the year on a high note.
The Dow Jones is up 14.3% between Jan. 1 and Dec. 24, the S&P 500 is up 25.1%, and the star of the year, the Nasdaq, is up a staggering 31.1%, driven by the AI craze and the rally in tech stocks.
Not many hedge fund managers can boast such results. For instance, Preqin’s All Hedge Fund Index returned 10% in 2024 through the third quarter or 14% on a compound annualized growth rate basis.
Hedge funds managed by Citco, the leading asset manager with $2 trillion in assets under management, have earned a weighted average return of 13.3% in 2024 through Dec. 19.
It’s not bad, but it’s still underperforming relative to the market. No wonder more and more investors are choosing to invest in just a couple of ETFs, skipping the additional management and success fees.
But will the gap narrow in 2025?
Maybe yes, maybe no. After all, past performance doesn’t guarantee future results. It all comes down to whether managers can make the right calls about which sectors will thrive and which will struggle.
The answer likely depends on the policies the U.S. will follow under Trump’s administration. If he decides to dive headfirst into trade wars, it could harm exporters in the countries involved.
We may even see further supply shocks. In that case, safe havens would likely be assets such as defense stocks, real estate, and XAUUSD, which are capable of preserving value in the face of global shocks.
They could also protect against inflation that could spike as a result of trade wars and simultaneously protect against rising interest rates as the Fed adopts a more hawkish stance.
However, this scenario could change as events unfold, so keeping abreast of the news is essential. Diverse ETFs could be an alternative for those who don’t have time to monitor everything.
