- Long/short equity down 8.6% last year, per HFR’s asset-weighted index
- But coming equity market dispersion should boost strategy, UBP says
- Related: UBP backs corporate credit after bond bloodbath
UBP is positive on the outlook for long/short equity after an “extremely difficult” year for the strategy, favouring low-net managers going forward.
“Most equity L/S strategies have a fundamental bottom-up stock picking approach and (at least in the shorter term) tend to suffer in markets that are driven by macro factors rather than by company fundamentals,” UBP wrote in its latest quarterly report.
“This is exactly what characterised 2022.”
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HFR data puts the typical equity hedge fund loss at 8.6% last year, compared to a 0.9% increase across all strategies, according to its asset weighted indices.
But UBP, despite a poor outlook for earnings and equity markets in 2023, is positive.
“We expect that the huge macro shifts of 2022 will translate into a major increase in equity market dispersion during 2023 as the fundamentals of ‘strong’ businesses will be dramatically less impacted than those ‘poor’ businesses,” said Kier Boley, CIO of UBP Alternative Investment Solutions, and Fredrik Langenskiöld, senior alts investment specialist.
“Eventually, stock prices are driven by fundamentals. A re-focus on specific company fundamentals creates rich opportunity sets for equity L/S, and particularly for low-net exposure strategies.
“We also have a preference for more liquid strategies this allows for portfolios to be rapidly repositioned if the overall outlook for equities improves.”
The Swiss investment house remains most positive on macro (focused on G10) and distressed credit.
It also has high conviction on convertible arbitrage, multi-strat relative value, systematic multi-strat and systematic short-term.
UBP invested in hedge funds since 1972. It had close to $12bn in alternatives as of September 2020, the most recent figure on its website.
Now read AFI’s analysis: Three Ms dominate performance in year of hedge fund dispersion