The prospect of markets remaining bumpy and interest rates at elevated levels for longer than expected, has spiked investor interest in hedge funds, according to a report by MarketWatch, citing Jack Springate, co-head of the hedge-fund business within the external investing group at Goldman Sachs Asset Management.
Elevated interest rates mean increased market volatility, according to Springate, and a wider gap between stock market winners and losers, which provides a good trading ground for nimble hedge fund stock-pickers.
The S&P 5600 is up 17.1% this year, having tumbled by 19.4% last year, its worst performance the global financial crisis of 2008, according to data from FactSet.
While hedge fund’s have broadly lagged behind the S&P 500 this year, with the HFRI Fund Weighted Composite Index posting gains of about 5% through July, Springate believes higher-for-longer interest rates and volatility in fixed-income should ultimately mean more opportunities for hedge funds to produce market-beating returns compared with a low-rate environment.
“Regimes when interest rates have been higher and market levels of volatility have been elevated, you’ve generally seen better returns from hedge funds,” he said.
