Hedge funds are increasingly in demand amid a volatile equity market.
Investors have been racking up positions to hedge against a potential slump in stocks, the Hong Kong Economic Journal reports, citing Andrew Lee, deputy chief of global ultra high net worth and alternative investment division of UBS Asset Management.
Lee said any market turbulence prompts investors to diversify their holding to mitigate risk, resulting in increased hedge fund positions.
This usually happens in poorly performing markets during an interest rate hike.
Short-selling in hedge funds makes it possible to maximize returns from non-cash market positions, Lee said.
He said investors should overweight equity hedge funds and special situation hedge funds that offer diversified risk in different sectors and take advantage of movements driven by mergers and acquisitions.
However, investors should reduce their exposure to funds that invest in long-term macroeconomic trends to avoid their lower turnover rate.
Lee said an average balanced hedge fund portfolio should be able to return from 6 percent to a high single-digit.
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