14.12.2022
In Focus: Hedge funds – An alternative to Fixed Income or Equity?
Hedge funds – an alternative to Fixed Income or Equity?
Dealing with the consequences of the global financial crisis of 2008, major central banks slashed interest rates and injected unprecedented amounts of money in the economy to save it from depression. Accordingly, interest rates reached record low levels, equity returns skyrocketed above historic averages and the negative correlation between bonds and equities made 60/40 portfolios a strategy of choice. The TINA (there is no alternative) mantra – there is no alternative to equity, and the Search for Yield prevailed. In that environment, hedge funds were used as a risk management tool, an alternative to non-yielding fixed income, at perceived high cost relative to their realised below average return.
Fast forward to today, the world has structurally changed. Interest rates are back to 2007 levels, we are witnessing the return of inflation, volatility is higher in most asset classes, and sustainable trends have allowed CTAs and macro managers to outperform. The environment is just more favourable to many hedge fund strategies, if not all of them. Higher interest rates are positive for all cash + spread strategies. Arbitrageurs have more opportunities as volatility periodically pushes price relationships out of sync. Dispersion among equities is in favour of skilled stock pickers. The re-shoring of activities, the rise of China, the rethought role of energy, climate transition and the rebalancing of geopolitical powers are a fertile ground for macro managers. Finally, the looming recession is likely to offer new opportunities for distressed managers in due time.
The next 10 years will most probably not look like the past 10 ones. Equity returns were frontloaded with the help of central banks’ quantitative easing. Going forward, quantitative tightening is likely to affect expected returns in the opposite way. In the years to come, hedge funds, particularly “uncorrelated” strategies, will continue to compete with Fixed Income for the role of “diversifier” in the portfolios, even if bonds are no longer yielding close to zero. At the same time, for the first time since global financial crisis, hedge funds have good chances to produce better returns than equities. Already this year, hedge funds proved again their usefulness in portfolios. Non-directional strategies performed the best, and we would favour those to complement multi-asset portfolios.
More articles
15.01.2025
Alexandra Kosteniuk x Cité Gestion
We congratulate Alexandra Kosteniuk on her 6th place at the World Championships and her bronze medal at the European Championships.
Read more08.01.2025
10th Anniversary of our Cité Gestion ETF Portfolios
For our first festive news of 2025, we are pleased to celebrate with you the 10th anniversary of our Cité Gestion ETF Portfolios, which focus on the power of compounding and diversification.
We thank you for your trust and look forward to the next 10 years !
Read the article20.12.2024
Top 10 Market Investment Themes 2025
Discover our annual publication presenting the top 10 market investment themes in 2025.
Read more17.12.2024
Zermatters x Cité Gestion
The 5th season of our heartfelt sponsorship of Zermatters is officially open!
The team is expanding this year, and we're delighted to also be supporting Andermatters and the Mammut Mountain School, who will guide you safely into nature and up to the peaks of the Uri alps and more.
We wish you lots of skiing, freeriding and ice-climbing fun, and look forward to seeing many of you in the snow!
11.12.2024
Save the date ! Forum Horizon 30.01.2025
What next for Switzerland on the world stage?
Thank you to Le Temps and IMD for welcoming us for the 3rd year as a strategic partner of this high-profile event.
Discover the program and book your tickets below:
Read more