Hedge funds cut back bets in tough May-Pictet |
Date: Wednesday, May 26, 2010
Author: Reuters
Hedge funds have
aggressively cut back bets in recent weeks during a difficult month that
has seen the euro tumble and stock market volatility soar, said
Pictet's head of alternative investments, Nicolas Campiche. Hedge funds are now positioned defensively
with lower levels of borrowing, said Campiche, who oversees more than $8
billion invested in portfolios of hedge funds. He thinks global macro managers are best
placed to profit from the turbulence. "The
first week of May was difficult," Campiche said in an interview late on
Monday. "Since then managers have derisked quite aggressively. Like
everyone, they don't have a clue where things are heading so they've
reduced their balance sheet. "Right
now, leverage is very low," he added. "Funds are playing defence but
there's no panic... Everyone is much more on their toes." However, funds are still not as cautious as
during the nadir of the credit crisis in late 2008 and early 2009, he
added. Hedge fund long leverage was
just over 1.5 times in October 2008, according to data from Britain's
Financial Services Authority, rising to 1.78 times by October 2009. Campiche's comments come during a volatile
month for stocks and currencies. The
VIX .VIX index of volatility has doubled between the end of April and
last week, following the Dow Jones's .DJI
temporary slump in the first week of May and a slump in the euro on
worries over the debt of southern European countries. Hedge funds are already losing money this
month as despite constant publicity around short-selling activities,
most are often positioned to benefit more from market rises than falls. According to Hedge Fund Research's HFRX
index, funds are down 2.91 percent from the start of the month to May
20, more than wiping out their gains this year. Equity hedge funds are
down 4.48 percent. With the FTSE
100 .FTSE
down 2.5 percent at 1206 GMT on Tuesday, further losses look likely. UNCERTAINTY TO PREVAIL Campiche said he is backing global macro
funds -- which bet on currencies, stocks, bonds and commodities -- to
profit in the current turbulence. "We
think markets will continue to be dominated by political and macro
events. The managers best positioned to analyse and react are global
macro managers," he said. "We
think uncertainty will prevail in markets and economies, which will lead
to high volatility, which is a positive for global macro." He also likes long-short equity funds that
focus on company fundamentals and that can profit both from share price
rises and falls. "We like
long-short. We think there will be more opportunity to create alpha than
in 2008 or 2009, when the market tended to move as a whole. We have a
feeling investors will pay more attention to company fundamentals." Campiche said his fund of hedge funds is up
2 percent so far this year, after a 16 percent loss in 2008 and a 14
percent gain last year.