Hedge fund managers increased their appetite for risk in September following signals that the Federal Reserve will vote to take additional quantitative easing measures when it meets in November, according to hedge fund provider Man.
The move into risky assets such as emerging market equities, FX and commodities led to a positive month’s performance for most hedge funds.
Managers’ moves to increase risk in September were typical of a volatile 2010. After giving back much of July’s gains in August, equity markets rallied again in September as bearish economic indicators gave way to renewed optimism that looser monetary policy will drive prices higher.
It was far from a smooth ride though, with significant intra-month reversals creating challenging trading conditions.
Anthony Lawler, head of portfolio management at Man’s multi manager business, says: “Risk appetite returned to the markets with a vengeance this month. Hedge funds, on the whole, put up strong numbers and we continue to believe that well managed portfolios of hedge funds will deliver an attractive long-run return pattern.”
Global macro and managed futures funds performed well, benefiting from strong moves in FX, gold, industrial metals and emerging markets equity ex-Japan. Managers profited in particular from short dollar and long commodity-linked currency positions.
Event driven and relative value made flatter contributions this month. Long/short equity strategies contributed strongly to performance but did not fully participate in the market’s rally.
Lawler adds: “Macro managers performed well in September and it was the second consecutive month of solid returns from managed futures managers, as momentum strategies exploited trending across futures markets. We continue to look to the FOMC meeting on 3 November for further quantitative easing from the Fed and the market is already discounting this expectation. Government intervention can significantly impact market prices and lead to trading opportunities as well as risks. In this environment, we continue to favour a balanced approach to hedge fund strategies with a focus on proven nimble, tactical traders.”