Research into hedge fund returns and strategies by Sweden's SEB suggests that managers risk losing opportunities from Europe's financial crisis if they do not act now.
Research into hedge fund returns and strategies by Sweden’s SEB suggests that managers risk losing opportunities from Europe’s financial crisis if they do not act now.
SEB notes that all hedge fund strategies lost money through 2011, with a low point noted in the third quarter as the HFRX Global Hedge Fund index shed -6.45%.
Its latest thinking is focused on the following strategies: equity long/short, relative value, event driven and distressed, and macro and trading.
Equity long/short is not a good strategy currently, becuase of the eurozone overhang on equity markets. This is making it harder to take bets on the basis of fundamentals affecting Europe’s companies.
“Exactly as before, we will remain cautious towards equity L/S during the next few quarters. Market neutral strategies remain higher on our list.”
Europe’s woes also hang over relative value strategies, but here SEB is more positive.
“Managers must remain tactical and agile, but the investment opportunities are good, especially for high yield corporate bonds, which have not kept up with the broader upturn. There are probably good buying opportunities here and there, both in Europe and elsewhere in the world. On the whole, the environment looks somewhat more balanced, and we are positive towards relative value during the next quarter.”
“Event driven and distressed strategies ought to be a good way to make money given expectations of cash-rich companies moving the M&A market. However, such activity also depends on the broader state of capital markets, and these remain less certain,” SEB said.
Macro and trading strategies could take advantage of Europe’s ongoing crisis, but managers must move quickly to tap the possible gains, SEB added.
“Managers still see Europe as the most important area to watch in the near future. Although the liquidity situation has improved, with the help of the ECB’s unlimited three year loans, the fact remains that there are extremely large government loans that will fall due and will need to be refinanced in the first quarter of 2012. The turmoil surrounding Greece and continued geopolitical tensions in the Middle East should create interesting opportunities for managers, but they will need the same ability to act quickly as before in order to be successful.”
Sometimes referred to as the ‘biggest manager you have never heard of’, Jonathan Boyd has caught up with PGIM for insight into its Europe region developments as part of global expansion