Due to their distinct characteristics, we take a differentiated look at selected liquid and illiquid alternative investments.1
We continue to assess the current environment as fertile for Discretionary Global Macro and even more so for Systematic/CTA managers. Divergent dynamics in emerging-market rates and credit, pronounced weakness or technical bear markets in most regions for equities and new, strong trends in a number of currency pairs are creating opportunities. Most importantly, we feel that as volatility expands, overall risk-adjusted returns can clearly benefit, by devoting a significant allocation to strategies which are at large agnostic to bottom-up fundamentals and can take increasing short positions in risky assets.
Pure mergers and acquisitions (M&A) arbitrage-focused managers have generally been weathering the recent challenging conditions relatively well. The environment for M&A continues to be conducive with still a healthy number of deals and supportive credit conditions for balance sheets. In the midst of higher market volatility, relatively safe deals trade at multiyear-wide spreads and present an interesting opportunity for managers with a provemun track record in the space and the ability to hedge out overall market risks appropriately. Recent market volatility and macroeconomic headlines could however impact the appetite for future corporate activity and the level of current spreads.
Asia continues to be a key driver of real estate, with improving credit-market conditions and accommodative monetary policy in a number of regions. This is especially pertinent for Japan, with the BOJ’s decision to enter negative interest-rate territory providing a boost for the country’s real-estate-investment-trust (REITs) market. Japan, along with Australia, appears to provide the strongest rental-growth potential for the Asian office sector.
Europe may also provide interesting growth prospects for 2016, with constrained supply improving the outlook for rental growth. Spain in particular is leading the way, with improving sentiment and wider credit availability as key drivers for its steadily recovering housing market. In the U.K., however, a possible Brexit could present risks for the domestic property market. A survey conducted by Property Market Analysis suggests that, compared to remaining in the EU, a Brexit could cause a 15% average reduction in property values by 2019, and as much as 25% for London office space.3
1 These portfolios may not be suitable for all investors.
2 Not available in discretionary portfolios. Hedge funds and other investments classified as non-mainstream pooled investments are not considered as suitable investments for retail clients in the United Kingdom. Illiquid investments may be difficult to acquire or dispose of. The product’s ability to respond to market conditions may be impaired and investors may experience adverse price movements on liquidation.
3 Property Market Analytics: Prospects for UK Real Estate in the event of an EU Exit; Winter 2015
* Commodity Trading Advisor