Mon, May 17, 2021
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

US equities rally but volatility may catch investors off guard

Wednesday, April 28, 2021

Consumer and investor sentiment has come roaring back in 2021, but this may be a more volatile recovery than many expect. US equities have rallied with widespread adoption of the vaccine and the re-opening of the economy. But one hedge fund manager warns that investors may be surprised by continued volatility despite all of the positive news.

"Believe it or not, the volatility now is almost as high as it was during the 1987 stock market crash," says Paul Lucek, CEO and co-CIO at Ridgedale Advisors."People just don't see it because it is in markets other than equities."

According to Lucek, commodities, currencies and fixed income are all exhibiting high levels of volatility despite the persistent rally in US equities. Uneven vaccination distribution globally is also impacting emerging market stocks. This means that the recovery is still vulnerable to bad news and the market environment is ripe for dislocations.

"There's still a lot of weakness out there," adds Peter Gorman, a partner at Ridgedale Advisors. "If you look at recent supply chain disruptions along with price increases in housing and commodities right now - it could slow the recovery if people can't get what they need. Investors are hoping to see everything come back right away, but we think it's going to be a longer recovery period than people expect."

Gorman points to commodities as one area where it could be a few years before markets are totally out of the woods. Energy and metals have come back fast, but agriculture will require new planting to build back supplies. In fixed income, lower rates could push investors into more opportunistic credit in search of yield. Any significant dip in the equities rally could exacerbate these weak points.

For Ridgedale, these vulnerabilities are opportunities. Ridgedale's systematic strategies are on the lookout for divergent trends with the goal of taking advantage of mispricings as they arise. "The volatility in the market right now is a positive for us," Gorman says. "When asset classes start to trend away from each other we can take advantage of those breaks."

Ridgedale's absolute return strategies have been on a tear since the start of pandemic-related volatility. The firm's flagship MSP Partner Series, a systematic global macro absolute return fund launched in 1986, was up 17.26% in 2020 and has built on that momentum in 2021. The strategy is up 28.02% through the end of the first quarter, according to performance information for investors reviewed by Opalesque. Both Lucek and Gorman expect that the environment will remain positive for the strategy throughout the rest of the year.

"We're seeing the market normalize higher volatility," Lucek says. "If we eventually start to see higher inflation come alongside that, there will be greater potential for dislocations. In a scenario where equities continue to perform well and investors are forced to be more tactical in other asset classes, a strategy like ours works well because we can take advantage of both of those trends."


Lucek will explain more about Ridgedale's outlook for the rest of this year in his presentation at our upcoming webinar "Small Managers Big Alpha" on Tuesday May 11th at 10:30am ET. Registration is free and available here.

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. U.S.: Hedge funds facing Biden tax threat grab toehold in Puerto Rico[more]

    From Bloomberg: With Democrats pushing for higher taxes on the richest Americans to fund President Joe Biden's infrastructure and climate initiatives, hedge fund managers are taking refuge in Puerto Rico. ExodusPoint Capital Management and Millennium Management have established subsidiaries on t

  2. SPACs: SoftBank-backed Better to go public in $7.7bn SPAC deal, Turmoil in the SPAC market, SPACs that raise a lot of money will struggle to find startups, Biotech firm Ginkgo to merge with Harry Sloan-led SPAC in $17.5 billion deal[more]

    SoftBank-backed Better to go public in $7.7bn SPAC deal From PE Insights: SoftBank Group Corp-backed Better HoldCo said on Tuesday it will go public through a merger with a blank-check firm sponsored by investment firm Novator Capital, valuing the mortgage startup at $7.7bn. As p

  3. Hedge fund Tiger Global beats out Silicon Valley VCs, invests in 110 startups so far[more]

    From Business Insider: Tiger Global, a $65 billion hedge fund, is squeezing out venture capital firms to invest in startups. The company has taken part in 110 startup financings so far in 2021, according to PitchBook. Venture capitalists say its speed and sky-high valuations lead to its success

  4. SPACs: Why the 'SPAC Mafia' hedge funds aren't worried about SEC regulation, Bill Ackman's cagey SPAC update sends shares soaring as investors dream up a mega-deal, Arqit raising $400m with a SPAC to launch quantum encryption satellites in 2023[more]

    Why the 'SPAC Mafia' hedge funds aren't worried about SEC regulation From Business Insider: After a yearlong bout of SPAC mania, the red-hot market for blank-check companies is cooling down as regulators direct their attention to it. March was a record-breaking month for special-purpose

  5. Private strategies pay off for Tiger Global, other hedge fund titans[more]

    From Institutional Investor: Hedge funds' strategies to invest in private markets have been driving returns at a number of firms this year. Third Point, Greenlight, Tiger Global, and Maverick received big boosts in the first quarter from their private investing strategies. That shouldn't be a