HSBC Private Bank is maintaining its highest conviction overweight in hedge funds in the belief that the current investment environment calls for an active approach to risk management which can be provided by hedge funds.
Willem Sels, UK head of investment strategy at HSBC Private Bank, says: “Our view that we will avoid a double dip recession appears to be gaining ground, particularly given the additional quantitative easing in the US announced last week. We remain optimistic regarding the future opportunity set for hedge fund managers. As evidenced by the events of recent months, the current investment environment calls for an active approach to risk management, which we believe can be provided by hedge funds.
“2010 was characterised by volatile markets that were driven by macro events and significant swings in risk appetite. One of the major challenges for investors was the high correlation between assets. As the deflation/recession scenario has now become much less probable, we believe that more fundamental analysis will become more important in the coming year. That will increase the need for active management, and the importance of long / short positioning within portfolios.”
Tim Gascoigne, global head of portfolio management at HSBC Alternative Investments and manager of HSBC Ucits AdvantEdge Fund of Hedge Funds, says the group’s highest conviction is with the discretionary macro strategy.
“We expect the uncertain macroeconomic outlook to provide opportunities for interest rates and currency strategies and we focus on these two most liquid sectors. Equity markets have been driven by economic sentiment for two years, creating significant miss-pricing of individual equities. In our view, as and when the environment changes and individual stock prices reflect more closely the fundamentals of these companies we expect to see outsized returns from equity long/short strategies that adopt a more fundamental and value oriented approach. Equity market neutral strategies, on the other hand, have performed well this year, driven by technical models in both equities and futures.”