Equity long-short tipped for 2016 success, hedge fund investors say
A new survey from Deutsche Bank has revealed that equity funds that are able to profit from both rising and falling markets are tipped to far outperform others over the course of 2016.
The 14th annual Deutsche Bank Alternative Investment Survey questioned 504 global hedge fund investors managing $2.1 trillion in assets about their top three investment strategy picks for this year. 40 per cent of the investors questioned said that, in their opinion, the top performer in 2016 would be the fundamental equity long-short strategy. Meanwhile, 35 per cent of the investors that were surveyed reported that their top investment pick for 2016 was the discretionary macro strategy. This strategy involves bets on markets, comprising a range of global currencies, rates and commodities.
In terms of the worst performing investment strategies over the course of 2016, 27 per cent of the investors questioned for the research said that they expected distressed credit to be among the lowest performing by the end of the year. In the opinion of 25 per cent of the investors questioned, activist investing would also be among the worst-performing strategies in 2016.
When looking at the Deutsche Bank data on a regional basis, the majority — 57 per cent — of the investors surveyed reported that they believed western Europe would be among their three best-performing regions over the course of this year. Following western Europe was the United States and Canada, which, as a duo, was reported by 55 per cent of the investors as being the region tipped for most success over the course of 2016. A further 31 per cent of investors said that Japan would, in their opinion, be the top performing region this year.
Those regions that were not expected to perform well this year, as judged by the investors in the Deutsche Bank survey, were Latin America, with 35 per cent of investors saying they thought this would be a poor performing region. Russia was also seen as being a likely poor 2016 performer, with 30 per cent of investors naming this region.
Greg Bunn, global co-head of Prime Finance at Deutsche Bank, said that many investors were increasingly looking for tailored strategies and products that cater to the shifting needs and requirements of the marketplace: “More investors are looking to increase their allocations to products such as alternative beta/risk premia strategies, liquid alternatives, hybrid private equity/hedge fund vehicles and co-investment opportunities.”
Anita Nemes, global head of Capital Introduction at Deutsche Bank, agreed with Mr Bunn: “Investors are becoming increasingly sophisticated in constructing their hedge fund portfolios. The return dispersion seen in 2015 means that choosing the right manager and constructing the right portfolio is ever more critical. Investors are concentrating and redesigning their portfolios in search of less correlated, diversified return streams.”
Overall hedge fund industry assets were tipped to grow approximately five per cent in 2016, surpassing $3 trillion, the Deutsche Bank research found, indicating an ongoing hunger in the marketplace from both existing and new investors. Over the course of last year, 63 per cent of survey respondents revealed that their top quartile of hedge funds produced, on average, +10.0 per cent or more.
Indeed, says Ashley Wilson, global co-head of Prime Finance at Deutsche Bank, allocations were still likely to be added to this year, even in the face of a fluctuating environment: “Despite a challenging year for global financial markets and for hedge funds, investors remain committed to their hedge fund programs, with 41 per cent planning to increase their hedge fund allocations in 2016.”