A new report from SEB Group demonstrates that hedge fund performance in 2013’s Q1 alone was nearly in-line with the entire year’s performance in 2012. With hedge funds trending toward a top performing strategy in 2013, knowing the underlying trends for hedge funds could be a major advantage for investors.
Hedge fund trends for 2013 include:
- Debt trading. Though big banks are no longer taking risks with debt trading, hedge funds are using this strategy to expand at neck-breaking paces. These funds are booming so quickly that BlueCrest Capital Management LLP had to double its staff in New York City to accommodate the increased demands. Furthermore, an additional $108 billion in credit funds has been dispersed since 2009.
- Long/short equity funds. The majority of hedge fund investors are using long/short equity funds. In fact, 58% of all hedge fund launches in the first quarter of 2013 were long/short equity funds, significantly up from the 36% launched in Q1 of 2012.
- Avoid CTAs – for now. If Q1 of 2013 is any indicator, CTAs could be the worst performing hedge funds in 2013. Preliminary research shows net returns at a measly 0.21%. With such a low rate of return, investors have lost significant interest in CTAs, which has been reflected in an 8% year-to-year drop in investor appetite.
- Distressed debt. Solus Alternative Asset Management LP has raised $1.1 billion from funds that are based in bankruptcy claims. While this type of investment could yield major dividends, it’s also incredibly risky because they’re supported by organizations that have previously defaulted on their debt. Entities that choose to take the risk in such investments should also be prepared and able to absorb any potential losses. However, if there’s anything that would benefit from asset appreciation during the post-crisis, it would most certainly be hedge funds.
- Taking risks. Data shows that first-time fund managers have launched 28% of all hedge funds in 2013. This showcases the confidence in the market and the willingness on the behalf of investors to take risks. Even if you’ve already invested in hedge funds, investors are viewing 2013 as the first year, after the economic collapse of 2008, to truly take calculated risks.
- Real estate remains strong. Despite all of the investment opportunities available, the real estate sector proves itself to be one of the most favored opportunities. Entrepreneurs are increasingly participating in the market, creating economic growth that exports the efficient asset management industry.
- Broad base of returns. With 3.35% quarterly returns in Q1of 2013, hedge funds represent an incredible opportunity for investors throughout the nation. Aside from long/short equity funds, event driven strategies create a promising period for investors throughout the rest of 2013.