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Comment: Risk appetite returns in September

Hedge fund managers increased their appetite for risk in September following signals that the Federal Reserve will vote to take additional quantitative easing measures, according to Anthony Lawler, Head of Portfolio Management at Man’s multi manager business.

The move into risky assets such as emerging market equities, FX and commodities led to a positive month’s performance in September for most hedge funds.
Managers’ moves to increase risk in September were typical of a volatile 2010. After giving back much of July’s gains in August, equity markets rallied again in September as bearish economic indicators gave way to renewed optimism that looser monetary policy will drive prices higher. It was far from a smooth ride though – with significant intra-month reversals creating challenging trading conditions.
“Risk appetite returned to the markets with a vengeance this month," says Lawler. "Hedge funds, on the whole, put up strong numbers and we continue to believe that well managed portfolios of hedge funds will deliver an attractive long-run return pattern.”
Global macro and managed futures funds performed well, benefiting from strong moves in FX, gold, industrial metals and emerging markets equity ex-Japan. Managers profited in particular from short dollar and long commodity-linked currency positions. Event driven and relative value made flatter contributions this month. Long/short equity strategies contributed strongly to performance but did not fully participate in the market’s rally.

Other key conclusions from Man’s research include:
Long/ short equity returns were marked by significant dispersion with the strongest moves to the upside generated in the Emerging Markets/Asia. Managers focused in Japan saw subdued trading following intervention in the currency markets from the Bank of Japan. Man continues to believe that the markets favour more tactical traders who can quickly adjust net and gross exposures as conditions require

Managed futures performed well given the significant momentum across most futures markets particularly in FX and industrial metals. September was marked by sharp reversals which led to more mixed returns from short-term traders.
Lawler adds: “Macro managers performed well in September and it was the second consecutive month of solid returns from managed futures managers, as momentum strategies exploited trending across futures markets.

“We continue to look to the FOMC meeting on 3 November for further quantitative easing from the Fed and the market is already discounting this expectation. Government intervention can significantly impact market prices and lead to trading opportunities as well as risks.

“In this environment, we continue to favour a balanced approach to hedge fund strategies with a focus on proven nimble, tactical traders.”

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