Hedge funds show their resolve in turbulent climate

Any experienced investor knows that international turmoil, whether political or financial, can quickly filter down to have an impact on seemingly unrelated markets.

That is why investors will normally look for a form of alternative investment that can withstand the bumps that will invariably appear in the road. And one alternative investment vehicle that has demonstrated resolute qualities in recent months is hedge funds.

June was one of the most dramatic months in recent European history, with Greece teetering on the brink of complete economic collapse. Amidst repeated failures to reach a bailout agreement, the world’s gaze has remained fixed on Athens to see how event will unfold.

But while the complicated, politically charged drama continues to unfold, new figures have shown that hedge funds have performed strongly over the first half of the year. Moreover, experts are predicting that this strong performance will continue into the second six months as well.

Staying strong as Greece falters

According to data from Hedge Fund Research, the year started strongly for the hedge fund markets; equity hedge funds were up 4.99 per cent in the first five months of 2015, while hedge funds overall were up 3.87 per cent.

And then came the turbulence of June. But even the aforementioned uncertainty focused around Greece could not reverse the strong gains made at the start of the year; that same data from Hedge Fund Research showed that the average hedge fund returned 1.27 per cent in the first six months of 2015 compared with Standard & Poor’s 500 index flat return.

This in turn has left the market quietly buoyant, with the second half of the year expected to build on the strong results reported in the first.

The European Central Bank’s quantitative easing programme has helped to underpin the growth across Q1 and Q2 of 2015, and the willingness of this financial heavyweight to support the investment market has helped to allay some of the fears of twitchy investors. The ECB has invested more than €1 trillion ($1.1 trillion) into the European stock market and as a result the Stoxx Europe 50 index was purportedly up as much as 20 per cent by mid-April.

At present, hedge funds oversee about $3 trillion in assets globally, Reuters says. In the second half of 2015 it predicts that hedge funds that bet mainly on stocks could bring in as much as $14 billion in fresh cash.

Seeing the big picture

Hedge Fund Research’s insights into the performance of hedges funds for the year to date do not just show the general strength of the market, they also offer a lesson in remaining patient.

Many hedge fund managers reported losses in June. However, take a look at the bigger picture by examining results across an entire quarter, six-month period or even year and the situation looks rather different.

As stated, the global hedge fund market managed to ride the wave of uncertainty emanating out of the Greece crisis and still return positive results. Of course, that is not to say losses were not incurred – on 29 June alone some witnessed falls of between one and two per cent – but rather that the damage inflicted was not as substantial as feared.

The anticipated rise in hedge fund investments between July and December is an indication that, as portfolio manager at GAM Anthony Lawler says, “the outlook for dispersion and growth is attractive” as we head out of summer.

Policy changes in the future are adding to the rose-tint of economists’ crystal balls. It is expected that the ECB, the Bank of Japan and the People’s Bank of China will all continue their respective easy monetary policies. This in turn, it is believed, will provide a further boost for trade and investment, including in alternative investments such as hedge funds.

As Lawler explains when speaking to Hedge Week: “[These monetary policies] should drive continued movements in currencies and should provide opportunities to trade relative value within and across asset classes globally… Our expectation is that the second half of 2015 will continue to be rich in opportunities.”

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