Pre-market stocks: Anxious investors pile into hedge funds

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For years, the hedge fund climate has been harsh. Volatility was low. The price of everything was going up. It wasn’t hard to make money. In this kind of environment, why think outside the box?

But as central banks continue their aggressive campaign to raise interest rates with the aim of lowering inflation, this has pushed markets higher roller coaster rideAlternative strategies take another look.

“Some hedge fund strategies could do well in choppy and sideways markets, an environment we expect to continue into next year,” Mark Heffel, chief investment officer at UBS Global Wealth Management, told clients Tuesday.

In the wake of the summer rally, the markets are starting to ripple again. Concerns have risen ahead of the Federal Reserve’s meeting on Tuesday and Wednesday, when the only debate will be over how much to raise interest rates.

The S&P 500 index posted its worst week since June. Government bonds are also witnessing intense selling. The yield on the benchmark 10-year US Treasury bond, which is moving at opposite rates, reached its highest level in more than a decade on Monday.

Regardless of what the Fed announces tomorrow, the uncertainty is likely to persist, given the central bank’s assertion that it intends to continue making decisions on a meeting-by-meeting basis.

“Volatility will be the dominant theme during the second half of the year, largely because central banks are still data-dependent,” Laura Cooper, chief macro investment analyst at BlackRock told me.

This boosts interest in hedge funds, with which professional investors are trying to beat the market by deploying less traditional methods.

These funds struggled in the wake of the global financial crisis. Low interest rates and a period of relative calm in the markets limited opportunities for opponents. Now, they have a chance again – and some are finding success.

Hedge funds improved in August even as the stock market declined, according to the latest reading of the fund’s HFRI 500 Weighted Composite Index, which tracks the best funds in the industry.

Not all fund types are created equal. One notable feature has been large funds, which look to take advantage of political and economic fluctuations. This category is up 14.8% since the beginning of the year, while the S&P 500 is down 17% during August.

Investors trying to take advantage of the turmoil in commodity markets have done particularly well, according to Robert Sears, chief investment officer at Capital Generation Partners, which invests in hedge funds of wealthy families.

In addition, there are opportunities for stock picking, with some companies better built to cope with high inflation and economic downturn. In recent days, warnings from companies including Ford

(F)
and FedEx

(FDX)
It raised concerns that a wave of earnings cuts could be looming.

“Until we get into the earnings cycle that goes down and the Fed starts loosening policy, you’re really prepared for an environment in which hedge funds should do well,” Sears told me.

Not everyone wants to take more risks. Nuno Matos, chief executive of wealth and personal banking at HSBC, has noticed an important change among his clients.

Global investors ‘not as active as before’ as many look to buy ‘more protection for their portfolios’, Matos He said in an interview on Monday With my CNN Business colleague Michelle Toh.

“We’re seeing clients sitting a little bit on the sidelines,” Matos said, adding that many have switched to bonds looking for some “stability.”

Matos shared how Europe’s largest bank advises its clients, including high net worth and individual investors.

For starters, diversification is now not just nice, it’s “mandatory,” the executive said.

That’s not all: He also suggested investors explore “value” stocks versus “growing” stocks, prioritizing mainly large companies with stable market share and healthy payments to shareholders over other fast-growing companies.

Even with many people selling assets, “you want to keep investing,” Matos said, noting the negative consequences of holding cash during a period of high inflation.

The banker also said his team was bullish on the strength of the US dollar, in part because he felt the US economy was “better weathering the storm than, say, the European economy.” The US dollar rose to a 20-year high while many other currencies fell.

How long will it last? Matos predicts that the current holding pattern among investors will extend until the middle of next year, when markets will have a better understanding of how interest rates will stabilize and get “breathing space.”

Sweden kicked off a pivotal week of surprise rate hikes by central banks, setting the tone for impending announcements from the Federal Reserve, Bank of England, Bank of Japan, Swiss National Bank and Norges Bank.

It’s just in: Riksbank on Tuesday raised interest rates by a full percentage point to 1.75%, as part of an effort to slow rate increases. The country’s inflation rate rose to 9% in August.

Inflation is very high. “It undermines the purchasing power of families and makes it difficult for companies and families to plan their financial situations,” the central bank said in a statement. “Monetary policy now needs to be tightened further to bring inflation back to target.”

Why it matters: The European Central Bank, a relative of the Riksbank, raised interest rates by three-quarters of a percentage point earlier this month. Since then, however, fears that inflation remains stubbornly high have been making their way through financial markets.

Investors see an 80% chance that the Fed will raise interest rates by three-quarters of a percentage point on Wednesday. But after data last week showed that inflation rose More than expected in Augustthey leave some room for full movement.

US Housing Starts and Building Permits for August at 8:30 AM ET. stitch repair

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Results reports after US markets close.

Coming Soon Tomorrow: It’s all about the Fed’s latest policy decision.

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