by Macroview Expected returns of traditional asset classes are reaching historical lows: equity valuations are stretched and negative bond yields are not unusual. Should investors be looking at hedge funds to enhance returns and diversify their portfolios? This has been one of the most disappointing years for hedge funds since 2008. A series of macro and idiosyncratic events – ranging from the ECB’s QE, to the Greek and Chinese crises, to the healthcare meltdown – created an unfavourable environment for hedge fund strategies. The macro landscape for 2016 does not look any smoother, but that does not mean it will lack opportunities. In particular, the de-synchronisation of economic cycles and monetary policies across major economies, coupled with a continued US dollar bull trend and a pick-up in volatility, should create strong tailwinds for tactical trading managers. We also remain constructive on the opportunity set for equity-sensitive strategies. As macro uncertainty and low returns dispersion persist, long/short managers with dynamic or neutral net exposure and able to use leverage should be best equipped to exploit opportunities in equity markets. Equity-focused developments are expected to be the drivers of event-driven managers’ performance as well, as lower credit exposures in managers’ books testify.
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Expected returns of traditional asset classes are reaching historical lows: equity valuations are stretched and negative bond yields are not unusual. Should investors be looking at hedge funds to enhance returns and diversify their portfolios?
This has been one of the most disappointing years for hedge funds since 2008. A series of macro and idiosyncratic events – ranging from the ECB’s QE, to the Greek and Chinese crises, to the healthcare meltdown – created an unfavourable environment for hedge fund strategies.
The macro landscape for 2016 does not look any smoother, but that does not mean it will lack opportunities. In particular, the de-synchronisation of economic cycles and monetary policies across major economies, coupled with a continued US dollar bull trend and a pick-up in volatility, should create strong tailwinds for tactical trading managers.
We also remain constructive on the opportunity set for equity-sensitive strategies. As macro uncertainty and low returns dispersion persist, long/short managers with dynamic or neutral net exposure and able to use leverage should be best equipped to exploit opportunities in equity markets.
Equity-focused developments are expected to be the drivers of event-driven managers’ performance as well, as lower credit exposures in managers’ books testify.
Lastly, while the ground is less fertile today for distressed debt managers, some metrics are pointing to the start of the next credit cycle, providing for classic distressed trades.