{"id":44567,"date":"2015-09-09T08:05:03","date_gmt":"2015-09-09T06:05:03","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/a-critical-change-of-paradigm-for-hedge-funds\/"},"modified":"2019-12-30T23:59:22","modified_gmt":"2019-12-30T22:59:22","slug":"a-critical-change-of-paradigm-for-hedge-funds","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/a-critical-change-of-paradigm-for-hedge-funds\/","title":{"rendered":"A critical change of paradigm for hedge funds"},"content":{"rendered":"

At the turn of the month, hedge funds rebounded as market conditions improved. The
\nLyxor Hedge Fund Index was up 0.4% last week, following a 3.3% drawdown in August.
\nYear to date, hedge funds have demonstrated their ability to protect portfolios, returning –
\n0.3% whilst the MSCI World and JPM Global Aggregate Bond Index were down 7% and
\n2.3% respectively. On a risk-adjusted basis, the outperformance of hedge funds is
\nimpressive and marks a critical change of paradigm. <\/strong> <\/em><\/p>\n

Fears of competitive devaluations in EM and unease about the timing and amplitude of the
\nFed\u2019s tightening cycle has recently caused markets to move in a way not seen for years. In
\nthe short term, we expect that market conditions will improve due to a combination of
\nsupportive fundamentals in developed markets and the Chinese not engaging in a beggarthy-neighbour
\npolicy. However, renewed bouts of volatility are likely to haunt investors
\nregularly in the medium term due to uncertainties over interest rates. In this environment,
\nhedge funds are likely to outperform traditional asset classes, a topic we have discussed in
\nprevious publications (See A New Era for Hedge Funds \u2013 June 2015).<\/p>\n

Following on from the drawdown in August, hedge funds were up in early September.
\nManagers that suffered during the selloff rebounded the most last week (see chart). <\/p>\n

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Event
\nDriven and L\/S Equity funds outperformed while CTAs underperformed after being
\nnegatively affected by the rebound in commodities and the rise in bond yields. We are now
\nupgrading Event-Driven, a strategy which we were defensively positioned during the selloff.<\/quote><\/p>\n

In response to widening deal spreads, these funds appear increasingly attractive at current
\nlevels. Meanwhile, we continue to favour CTAs over the midterm as they provide adequate
\ndiversification benefits in a portfolio. Their current positioning is vulnerable to any market
\nrebound: neutral on equities, long bonds, long USD and short commodities. Nevertheless,
\nfrom a strategic point of view, CTAs remain a good option in portfolios amidst the
\nunprecedented challenge of normalising monetary policy in the US.