Dubai

Money is slowly flowing in again into hedge funds, after a challenging 2016.

Investors added an estimated $10.79 billion into hedge funds in November lifting 2017 net flows to over $40 billion, and the long/short strategy remained the most attractive among investors, according to research agency eVestment.

“While November was positive both in terms of flows and the proportion of managers experiencing inflows (52 per cent with inflows), only 40 per cent of funds have net inflows for the year. The implication is that while overall inflows indicate the industry is healthy, the health is not widespread, and assets are consolidating,” eVestment said in a report.

Among the strategies, long/short equity funds witnessed large inflows in November which pushed them past macros as being most in demand in 2017.

And even the returns are attractive.

The average 2017 return of the ten largest managed futures asset gatherers in the last two months is nearly 5 per cent. That’s nearly 300 basis points better than the universe’s average return in 2017.

Emerging Market interest in November was focused on either Global, or Asia-focused funds. Among the largest gainers of new EM assets in

November, exposure was primarily either global, or focused on Asia, China in particular. Three of the top five asset gainers were credit-focused as well.

Allocations to Europe-domiciled funds were spread across strategies in November. Europe’s hedge fund industry had a very positive month of new allocation in November. While normally aggregate inflows or outflows are dominated by one or two strategies, across the top

six asset gaining products in November, each operate different strategies. The only underrepresented strategy among European funds

with inflows was event driven, the research agency said.

Gung-ho:

Given the current backdrop of rising interest rates in the United States, UBS, which manages more than $2 trillion of clients money is gung-ho on hedge funds.

UBS feels that hedge funds are a useful source of return and stability in a multi-asset portfolio, especially during times of market volatility.

“They offer superior risk-return characteristics to many other asset classes and access to uncorrelated investment opportunities, which provide downside protection and diversification benefits,” the UBS said in a yearly report.

They expect an annual returns of 4-6 per cent, and heightened stock dispersion, low cross-asset correlation, rising interest rates, moderately higher volatility, and diverging monetary and economic policies will support the performance.

“Historically, most hedge fund strategies have been resilient to rising rates. Investors looking for an alternative to their high grade bond exposure should consider a diversified hedge fund portfolio characterised by low directional exposure to both fixed income and equities,” the UBS’ chief investment office wealth management said in a report.