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Alternative Market Briefing

Alternative asset manager FRM believes 2012 will afford better opportunities for hedge funds due to diversity of sources of return

Monday, March 05, 2012

Beverly Chandler, Opalesque London: FRM remains optimistic for investment returns from hedge funds for the coming year, citing idiosyncratic risk beta as evidence. In their Early View commentary, the firm says: "Technical factors in select risk assets are likely sources of return for hedge funds that are aware of market dynamics" FRM writes. "Though this represents risk asset beta, it does not necessarily follow that these assets will be correlated to broader markets. For example, in RMBS markets in the US, investor demand has been increasing and concerns over selling pressure from European banks has abated, leaving scope for improvement in pricing levels irrespective of underlying fundamentals (which also happen to have improved in the past few months)."

The firm also finds that cash-on-cash yields in non-agency RMBS are attractive in the extreme scenario but also offer decent asymmetry in the positive scenario. Another example of potential investment returns is, FRM says, in Emerging Markets where policy action is becoming increasingly divergent. "For example, the Brazilian central bank has maintained the view that it can bring its policy rate down to single digits; consensus estimates suggest 175bps of policy cuts in 2012. In Asia, easing policy is expected to be slower as policymakers wait for signs of sequential decline in inflation (eg in China and India). Contrary to this, tightening policy conti......................

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