Wednesday, 26 May 2010

One Step Beyond for Lipper on Hedge Funds

We are well used to output from Thomson Reuters reporting on factual stories on the hedge fund industry. Through the Lipper subsidiary they are going a step further. Up to this point Global Head of Hedge Fund Research Aureliano Gentilini has published research looking backwards. He has gone from exhaustive analysis on dispersions of hedge fund returns and returns by strategy to something altogether less certain – forecasting.

What he has produced is the kind of output you see from funds of funds managers as they describe the macro environment and how it may suit/hurt the returns from the various hedge fund strategies.

Here are some edited extracts from Lipper Hedge Funds Insight Report, “Hedge Funds Outlook”, May 2010

Selected hedge fund strategies are expected to successfully navigate current market turmoil as the risk/return profile of hedge fund managers remains intact

􀁠 The global macro-scenario, macro-information flow arrival, and volatility clustering are expected to continue dominating market sentiment in the short run.

􀁠 In the current trading environment macro and systematic traders are expected to benefit the most from trading across diverse asset classes.

􀁠 Looking at the recent past, historical patterns occurring in 2007 might materialize again. Several macro-driven "crowded trades" are about to appear again in hedge portfolios.

􀁠 Concerns about absorption of new government bond issuance of PIIGS countries and low bid-to-cover ratios at government debt auctions will affect the intermediate-to-long sector of the yield curve in those countries.

􀁠 The Dedicated Short-Bias strategy will be a bright spot as market fears resume. The ten-day exponential moving average of the CBOE Equity Put/Call Ratio—a gauge of the sentiment of speculative traders, which hit a multi-year record low of 0.472 on April 15—appears to be close to a reversal to the downside.

􀁠 FX strategies will continue offering attractive opportunities to lock in profits in the short term. Of interest is the change in positioning that large speculators executed in the euro foreign exchange futures markets in the week ending May 18.

􀁠 In the current market scenario gold and the U.S. dollar are expected to again trend higher in tandem, with the precious metal trending to record highs after a temporary pause.

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