Algorithmic Trading – New Startups Beating Established Hedge Funds

Ali Qamar

Updated: 16 November 2023

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How come the new startups can manage to beat the massive hedge funds?

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Hedge funds have had a dramatic growth over the past with now the number settling well over 10k, and the total asset value of more than $4.5 trillion. Moreover, with the increasing application of technology, the numbers will only continue to grow going forward.

Algorithmic trading dominates the hedge funds with some already made a name and becoming the best in the game. However, the table is changing with new startups taking on the larger hedge funds – in fact, they have become successful and beaten the well-established hedge funds.

The Giant Beaten

Small gets larger – that’s what is happening with the hedge funds. That’s good news for most investors, implying that you don’t require the complicated and costly algo hardware and software to be successful. Besides, simpler algorithm systems are perhaps profitable.

The Sharekhan Limited

The Mumbai-based hedge fund has done remarkably well, working on the automated trading signals. Sharekhan had only $20 million in 2006 under management, but within six years, they generated a 150% profit.

Within that time, Sharekhan had done impressively well outdoing most large and experienced hedge funds. For instance, the profit they made translated into a 25% return per annum even though in 2008, most funds experienced heavy losses during that years’ global financial crisis.

So, How Does it Compare?

During the six years that Sharekhan made a lot of profit of about 150%, the hedge funds industry as a whole managed an average return of 30% between 2006 and 2012. It’s not rocket science to understand the difference that Sharekhan alone achieved.

The primary focus of Sharekhan’s limited is to manage and trade the clients’ funds. Besides, they do offer to broker service, whereby the clients willing to trade on their own are allowed to do so.

But how come that they achieved a lot of profit when most hedge funds were on the losing end during the crisis?

Unlike the large and experienced hedge funds that follow the long-term trends, Sharekhan utilizes the short as well as mid-term trend trading technics for their automated trading signals. The long-term trend has been up in the stock market propelled by the inflation as well as the economic growth, but during the crisis in 2008, the stock markets crashed similarly to the one in 2011.

Therefore, during those periods, the significant hedge funds got it rough and took a beating as they failed to recognize those changes early.

On the other hand, Sharekhan’s signals were able to adapt to the new changes thanks to their shorter-term trends. As a result, they were able to reverse the strategy to bearish from the bullish on stocks.

At the end of the day, they were able to avoid losses that most of the competitors incurred during the crisis, enabling them to come out strong instead with impressive profits.

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Larger hedge funds use expensive as well as sophisticated trading hardware and software, but that has not stopped a new startup like Sharekhan to get ahead of them. Interestingly, Sharekhan has an automated trading system way more straightforward.

Nevertheless, being smaller isn’t after all real small; instead, it comes with the advantage of being flexible as well as faster adaptation to the market changes like the financial crises.

Algorithmic Trading – New Startups Beating Established Hedge Funds

Ali Qamar

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