The stock market had a wild ride in September, with the Dow Jones falling roughly 4.8 percent. The benchmark also experienced its first 5% decline from its all-time high last month. The Dow Jones gained only 0.2 percent for the quarter, its worst quarterly performance since the first quarter of 2020, when the Covid crisis sent stocks into a bear market.
Nonetheless, some stocks stood out as winners. For example, Covid vaccine maker Moderna surged more than 60% in the third quarter, becoming the Dow Jones’s biggest winner.
The third-quarter rally in Moderna could help boost returns for the company’s large investors. In the second quarter, Stephen Mandel’s Lone Pine Capital purchased more than $900 million in Moderna stock. At the end of June, Philippe Laffont’s tech-focused Coatue Management increased its bet on the biotech stock to more than $1.4 billion.
Lone Pine and Baillie Gifford’s big bets on diabetes management company DexCom may be paying off as well, as the stock rose 28 percent in the quarter.
Baillie Gifford also owned $779 million in shares of Albemarle, a chemical manufacturing company, at the end of June. In the third quarter, the stock increased by 30%.
Mosiac, a materials company, was also a winning bet in the third quarter, rising about 12%. At the end of the second quarter, David Tepper’s Appaloosa Management held nearly $80 million in Mosaic shares.
To be sure, these investors’ holdings could have been adjusted during the third quarter, and their other bets could have dragged overall performance down. They report their long positions to the SEC 45 days after the end of each quarter.
Volatility benefits hedge funds.
According to the bank, September was a good month for hedge funds because all five strategies that it tracks outperformed the Dow Jones.
“Higher volatility benefits hedge funds more than mutual funds,” said Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, in a note. “Historically, hedge funds have outperformed during periods of high/rising volatility.”
According to Bank of America data, equity hedge funds outperformed more than half of the time when the VIX index was above 20. When the VIX was less than 20, they only outperformed the market one-third of the time.The VIX is an abbreviation for the Cboe Volatility Index. The index tracks the level of fear on Wall Street by looking at the prices of options on the Dow Jones. Last month, the VIX reached a five-month high near 19.