K2 Hedge Fund Strategy Outlook: Third quarter 2023

The current environment looks favorable for equity market neutral, global macro, and insurance-linked securities, according to K2 Advisors. The team offers its mid-year outlook for these and other hedge fund strategies.

As we reach the mid-year mark, which is a time when we thought we would have more clarity on economic trends, inflation, geopolitical pressures, and central bank biases, we arguably have more uncertainty and a wider range of reasonable outcomes. Active asset managers, of which hedge funds are the most agile and dynamic, need to be a larger component of asset owners’ portfolios for the foreseeable future.

Strategy highlights

  1. Equity market neutral: Single stock correlations are low on a historical basis, suggesting a favorable environment for equity market-neutral strategies for picking winners and losers.
  2. Discretionary global macro: Managers are closely following inflation trends, differences in regional data, and the potential impact of hawkish policy on economic growth, among other key macro indicators.
  3. Insurance-linked securities (ILS): While spreads have tightened from all-time highs in late 2022, the forward-looking outlook remains attractive to us. Total yields remain elevated following the June 2023 renewals which saw continued tighter reinsurance capital and higher money market rates.

K2Q3 table