Trend hedge funds come out winners in bond market rout

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A fresh rout in government bonds has sparked alarm across world markets, battering equities. So-called trend following and systematic hedge funds have long positioned for a fall in government bond prices given higher-for-longer inflation. They stand out as winners from the latest bond selloff, with bond yields from the United States to Germany this week hitting multi-year highs as concern about elevated interest rates and high debt levels took hold, derailing stock markets in turn.

FILE PHOTO: FILE PHOTO: The Wall Street sign is pictured at the New York Stock exchange in New York City, United StatesLONDON - A fresh rout in government bonds has sparked alarm across world markets, battering equities. Yet in one corner of the hedge fund world, there's a sigh of relief.

A Societe Generale index tracking the average performance of 20 of these funds posted a positive 2.3% performance average for this year up to Oct. 4, up from negative 4% in March of this year. AlphaSimplex is a $7.9 billion trend following hedge fund. These funds use computer algorithms to find where markets might move and initiate trades which jump on for the ride, up or down.

To manage the risk, the hedge fund's computer systems refocused its portfolio to benefit from the differences in values found in currencies and agricultural markets. The hedge fund still maintains a smaller short fixed income position.Instead of shrinking positions, some have diversified their holdings.

"We did this in order to capture trends in more places and to be less dependent on the price action on the bigger, more widely traded markets," said Ooi.

 

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