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Alternative Market Briefing

Volatility driving new opportunities for certain hedge fund strategies

Thursday, January 17, 2019

Laxman Pai, Opalesque Asia:

After the lowest equity market volatility in 100 years, financial markets are undergoing a regime change to a new, higher volatility norm, helping generate trading opportunities for certain hedge fund strategies as the relationship among stocks, rates and credit spreads evolves, affecting prices and correlations.

This is among the key findings of J.P. Morgan Asset Management's recently released inaugural Global Alternatives Outlook featuring a 12- to 18-month outlook for each of the key alternative asset classes.

Value stocks have significantly underperformed since early 2017, said the report that highlighted J.P. Morgan's CEOs, CIOs, portfolio managers and strategists' most promising investment ideas.

Should borrowing costs rise, or earnings expectations for growth stocks fall, value stocks can be expected to rebound, benefitting hedge fund strategies offering exposure to the equity value factor, it said.

"Cross-asset RV strategies can continue to benefit from an equity volatility pickup and widening credit spreads. So can market-neutral strategies that do not time the market trade to the relationship between securities and asset classes," the report said.

"As market risks continue to build in 2019, our Alternatives Outlook examines how, when and why investors might want to consider using offensive and defensive approaches across a wide range of alternative asset classes and investment strategies," said Anton Pil......................

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