Global Private Banking Investment Outlook Report Hedge Funds We maintain our positive outlook USD strength remains a key trend with profits, and the outsized price action this for hedge funds because market the Fed further ahead in its hiking cycle year continues to be beneficial. This is conditions, which we forecast to than the rest of the world. Tactical shorts particularly true for managers who have persist well into the first half of in equity markets are popular exposures shorter lookback windows and are more 2023, are supportive for a number of as stocks come under pressure from reactive. For other approaches, market strategies. In addition, higher cash both higher rates and recession fears. neutral systematic in particular, we note rates provide a tailwind for certain In contrast we maintain our neutral that the current environment of elevated strategies such as managed futures negative outlook for EM focused macro dispersion at a sector and single stock and equity market neutral. We have managers due to geopolitical and level along with heightened volatility the strongest positive conviction economic headwinds. Idiosyncratic provide a ripe opportunity as we on developed market discretionary opportunities do however exist in certain continue to see outsized contributions macro, systematic market neutral markets. But these bright spots are from idiosyncratic stock selection. and multi-PM strategies all of which nonetheless challenged by the negative We continue to maintain an outright have made money during 2022. sentiment, elevated volatility and low positive outlook on multi-strategy and The environment remains supportive levels of liquidity making trading difficult. multi-PM managers. Many multi-PM for developed market focused macro We remain neutral on Managed Futures managers have continued to deliver managers. Divergences in the timing, strategies, neutral positive for Market strong returns in this unpredictable and speed and magnitude of monetary Neutral Systematic and neutral negative whipsaw market, which continues to tightening and potential recession across for Equity Long-Bias Systematic. For validate our high conviction in the space. G10 economies should offer fertile managed futures while trend followers Risk management at multi-PM shops is opportunities in both directional and are not necessarily long volatility, they notoriously sophisticated and involved, relative-value fixed income trades. In FX, need ‘something to happen’ to make and its varied sources of uncorrelated Daily bond yield moves were much larger than usual, providing hedge funds with many opportunities 0.5 0.4 0.3 0.2 0.1 year Treasury yields (%)0 - -0.1 -0.2 -0.3 Daily moves in 10-0.4 -0.5 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Source: Bloomberg, HSBC Global Private Banking as at 22 November 2022. Past performance is not a reliable indicator of future performance. 34