Markets may stay bumpy with interest rates at elevated levels, an environment that Goldman Sachs Group’s Jack Springate says has sparked heightened investor interest in hedge funds.
“Hedge funds were generally more defensively positioned coming into this year,” a stance that “worked very well” in 2022, he said. “Regimes when interest rates have been higher and market levels of volatility have been elevated, you’ve generally seen better returns from hedge funds.” The Vanguard Total Bond Market ETF BND, which provides broad exposure to U.S. investment-grade fixed-income securities, has posted a 1.5% total return this year through Tuesday, after slumping this month as Treasury yields jumped, FactSet data show.
Managers in the hedge fund industry recognize “the Fed has a difficult needle to thread of lowering inflation without causing the economy to go into a steep recession,” said Springate. “So far so good,” he said, but “inflation can be a hard thing to tame and can lead to more volatile markets with big up and down trends.”
The CBOE Volatility Index, a measure of fear in the stock market derived from the S&P 500, traded around 14.5 on Tuesday, well below its 200-day moving average of 18.5, FactSet data show. The index VIX also dipped slightly below its 50-day moving average of 14.8.
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