Hedge Fund Perspectives
Markets appear to be at an inflection point, driven by the potential transition to a period of rising interest rates and higher volatility as U.S. monetary policy tightens, as well as the anticipated deregulation and fiscal stimulus under the new U.S. presidential administration. This would represent a significant departure from what broadly occurred in the years following the financial crisis as quantitative easing from the Federal Reserve suppressed volatility and supported higher asset prices, which contributed to one of the worst relative periods for hedge funds that we have ever seen.
As we enter what appears to be a new era with a greater emphasis on fiscal policy as opposed to monetary policy in the U.S., we expect hedge fund performance to improve. In fact, we have already observed better returns in the initial stages of this potential regime shift as the trailing 12-month performance of the HFRX Global Hedge Fund Index has reached its highest level since 2010. However, there is still significant uncertainty around how the new U.S. administration will take shape, and we believe there are other wild cards related to presidential tone and temperament, immigration policy and trade protectionism that also have the potential to disrupt financial markets for periods of time going forward.
We believe hedge funds can thrive in this type of environment as the potential for greater and more frequent dislocations could lead to opportunities. In this publication, we examine how certain strategies may be impacted by the evolving investment landscape. In particular, our third article focuses on uncorrelated strategies, which we believe could be among the major beneficiaries of increased volatility. We then address the importance of having such an allocation in a portfolio given that valuations in many markets appear stretched relative to historical norms.
We hope you find this publication useful as you assess portfolio strategy in the coming months. Please contact your Neuberger Berman representative with any questions or feedback.
Articles
Tax Reform, Deregulation and Hedge Funds
Sweeping changes in the political and regulatory backdrop could have major implications for some strategies.
Reflation and Rising Interest Rates: Catalysts for Hedge Funds?
A combination of fundamental and technical factors has the potential to lead interest rates higher and be a tailwind for several hedge fund strategies.
Breaking Down Uncorrelated Strategies
We take an in-depth look at a key area of opportunity in the current hedge fund landscape.
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