Thursday, January 31, 2013

Hedge Funds Play Catch-Up

Our annual GAIM conference last week in Boca Raton yielded a wealth of investment insights and industry information for our attendees.  But if we had to pick one macro trend for the coming year, none may be more important than this one: more and more managers are favoring equities – in particular, U.S. equities – over fixed-income.  That’s a new twist in the world of hedge funds.  Earlier this month, Hedge Fund Research announced that the fixed income-based “Relative Value Arbitrage” strategy at the end of last year overtook “Equity Hedge” as the largest strategy area by assets.  But it may be no coincidence that, while hedge funds’ love affair with all things debt-related was peaking, the S&P 500 Index was beginning an 11-percent rally from the middle of November through last Friday.  Now, hedge fund investors certainly have plenty to grumble about – nearly 9 out of every 10 hedge funds lagged the S&P 500 last year, and the S&P’s 2012 return dwarfed that of the average fund.  But those funds that did bet big on U.S. equities were rewarded.   For one, Patrick Wolff’s Grandmaster Capital Management gained 22 percent last year.  Is there still life in this bull market for stocks?  “Now you have P/E’s that are very reasonable, and you have rock-bottom interest rates,” Wolff told Reuters TV at the GAIM event.  “So interest rates can come back up by a few hundred basis points, and stocks still look attractively valued.”  Large-cap U.S. stocks in particular look good, according to Wolff and others at the conference.  You heard it here first.

Link to Reuters story about GAIM attendees touting U.S. equities:

Link to Reuters TV interview with Patrick Wolff:

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