When stocks fall, bond prices rise. Or at least that’s what’s supposed to happen. These days, most asset classes seem to fall simultaneously. The S&P 500 has fallen around 8% over the past month, while US Treasury yields have continued to climb (with prices falling). In this environment, hedge funds have largely outperformed and are “well positioned to weather the current market volatility”, according to a new report from UBS. Research from the Swiss investment bank shows hedge funds gained 0.4% in August while global equities fell more than 4%. Hedge funds are alternative investments that employ a wide range of strategies, including betting on falling markets. Many also use leverage to maximize returns. These investments were previously limited to a select group of investors, but are now wisely accessible through ETFs. The UBS report also showed that the hedge fund performance indicator, the HFRI-weighted fund index, fell just 4% this year through August, with the MSCI World index down 15%. .6% over the same period. The chart below shows how hedge funds have consistently beaten broader equity indices this year. For example, despite the MSCI World Index falling more than 8% in April and June, hedge funds posted returns of 2.3% and -0.7% for the respective two months. The bank’s rating to clients says most hedge fund strategies outperformed as political risks, macro issues and monetary policy weighed on the markets. “Some hedge fund strategies can perform well in volatile, sideways-moving markets, an environment that is likely to last well into next year,” the report said. This year, recession risks have increased as central banks have become more hawkish on inflation. In such a scenario, UBS said it prefers hedge funds that offer “macro strategies” that can trade in volatile markets. “These funds can invest in a much wider range of underlyings [securities] including commodities and currencies, as well as bonds and equities,” the report says. “Multi-strategy funds are also attractive because they offer access to multiple sources of alpha and can quickly reallocate their capital to most attractive opportunities as they evolve. Can bonds make a comeback? With bond prices currently falling alongside equities, UBS expects this relationship to return to normal soon. The report states that since 1930, bond prices have rebounded after 12 months of negative returns for stocks and bonds Bonds have returned 11% on average each time.
LONDON — European markets rose on Friday, gaining some breathing room after a torrid week as the third quarter drew...Read more