Hedge funds continue to drain investment capital amid mediocre returns, but they maintain a loyal following among asset allocators. What do hedge fund believers want from this asset class now?
Consulting firm Agecroft Partners surveyed 300 allocators to find out which investments are considered the best bet in 2024 and which are not. Don Steinbrugge, founder and CEO of Agecroft, said in a report on the findings that these investors “provide good guidance on strategies for capital inflows. ” he wrote.
It is true that investment funds are currently flowing out of hedge fund coffers. Investors withdrew an estimated $14.3 billion from hedge funds in January, the second-largest annual net outflow since 2009, according to Nasdaq Investments, the exchange’s research arm. Hedge funds rose 5.6% in the first quarter of this year, lower than the five-year average of 6.9%, according to Hedge Fund Research.
Despite this, public pension plans hold 6.5% of their assets in hedge funds, up from 3.3% in 2010, the Public Plans Database reports. In fact, some investors are renewing their faith in hedge funds. The California Public Employees Retirement System, which gave up $4 billion in hedge fund allocations in 2014, is considering returning to hedge funds.
So here’s how hedge fund believers are evaluating various hedging strategies this year, compared to a survey from two years ago, the Agecroft report shows:
long short stocks remains the most popular strategy, chosen by 65% of respondents, up 1 point from 2022. Here, the fund’s manager often offsets his long positions in undervalued stocks and short in overvalued stocks. It uses the following techniques, often by ranking stocks in the S&P 500. Recent past performance.
As Steinbrugge argued, investors are encouraged by the market’s “sentiment about fund managers’ ability to generate alpha through stock selection.” He pointed out that there is a wide disparity in valuations not only between large-cap stocks and small- and mid-cap stocks, but also between growth stocks and value stocks. Because of these gaps, he continued, “many investors believe that both are great environments for active managers.”
stock market neutral The largest increase was 63%, an increase of 16 points. The objective of this strategy is to record profits regardless of the direction of the overall market. A variant of the long-short strategy, which pairs long and short positions and is determined by statistical methods using historical correlations and derivatives over many years. Mr. Steinbrugge argued that the strategy is driven by enthusiasm for management’s ability to pick stocks at a time when valuations are high.
fixed income was also supported, rising 11 points to 46%. This comes as the bond market as a whole is dragging its feet, with Bloomberg US aggregate showing a deficit of 0.08% this year. However, he noted that high interest rates are now attractive.
ESG The fund’s appeal has waned, from 38% to 19% this year. Steinbrugge did not pinpoint political debates over environmental, social and governance investments as the cause of the decline. Rather, he blames confusion over what constitutes ESG investing, writing that “criteria are wide-ranging and vary from investor to investor.” He added that he expects the instruments to become more standardized over time.
cryptocurrency and other digital assets are also now less attractive, ranked as the choice of 41% to 24% of those surveyed. This seems counterintuitive given recent developments in cryptocurrencies. Bitcoin is up 66% this year. Steinbrugge said the problem is that many people don’t understand cryptocurrencies. This too will improve over time, he declared.
Related article:
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The biggest hedge funds take control and get the most investments.
Tags: Agecroft Partners, Cryptocurrency, Don Steinbrugge, ESG, Fixed Income, Hedge Fund Research, Hedge Fund, Long/Short, Market Neutral, Nasdaq Investments
