Fund of hedge funds manager International Asset Management believes greater exposure to macro and commodity trading advisers’ strategies makes sense in the current economic environment.
IAM believes allocations should be balanced between opportunistic managers who can react quickly to market movements, and managers who are focused on preserving capital.
It expects market volatility to continue due to the ongoing sovereign debt crisis in the eurozone. Given this uncertainty, IAM believes manager selection and portfolio construction will be crucial drivers of returns.
IAM says most macro managers are bearishly positioned, which should help their performance given the pessimism for the global economy.
It also says most CTAs are taking long positions in bonds and short positions in equities and that the strategy is liquid enough to move quickly if better opportunities arise and if the economic outlook becomes clearer.
IAM believes long/short equity managers will need to be more focused on where they can find value from better opportunities given that growth in western markets is expected to be low, with less upside potential from developed equity markets over the short term.
IAM also sees the return outlook improving for credit managers, but feels the timing may be better in the future to add allocations to this strategy.
IAM chief executive Morten Spenner says: “The current market environment probably favours the return outlook of debt-related managers. But we retain a positive return outlook on the long/short equity and event-driven strategies, for the potential to produce higher returns in more favourable conditions over the longer term.”