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What Sectors will be Hot – or Not – in 2018?

Year-end is traditionally a time when investors review their investment portfolios and make decisions about how to best rebalance their holdings for the coming year. As we approach the end of 2017, BarclayHedge surveyed fund of funds managers and other large investors to find out which sectors they most favor for 2018.

The survey included questions on cash inflows and redemption requests for five hedge fund sectors: Equity Hedged, Fixed Income, Global Macro/Managed Futures, Multi-Strategy, and Emerging/Frontier Markets.

Here are more details on responses to the three questions included in the BarclayHedge survey.

Investors Currently Favor Equity Hedged and Multi-Strategy Funds

Q1: As we approach the end of 2017, which sector is seeing the most investment interest from investors?

The strongest investment interest was for the Equity Hedged and Multi-Strategy sectors, while the most redemption requests were for the Fixed Income sector. Investors also indicated which sectors they were most bullish or bearish about heading into the new year.

Barclay Hedge Fund and CTA manager survey


Fixed Income Funds Face Highest Redemption Rates

Q2: Which sector is seeing the most redemption requests from your investors?

More than 31% of the survey respondents reported outflows in Fixed Income, making it the leading sector for redemption requests. Twenty-two percent cited redemptions in Global Macro/Managed Futures, 19% selected Multi-Strategy, and 17% pointed to the Equity Hedged sector.

Only 11% reported Emerging/Frontier Markets as leading in redemptions. At this point investors may be feeling that these markets, which have been beaten down in recent times, are prepared to head upward again.

“As developed economies continue to grow, export demand in emerging markets grows in tandem,” says Waksman. “Based on traditional valuation methodologies, Emerging Market equities appear to be underpriced relative to US competitors in similar industries.”

Barclay Hedge Fund and CTA manager survey


Bullish and Bearish Rankings for Five Hedge Fund Sectors

Q3: In your role as an investor, which sectors are you the most bullish and bearish on for 2018?

Looking ahead to 2018, 55% of the investors were bullish on the Multi-Strategy sector, while only 29% were bearish. For the Equity Hedged sector, 51% were bulls and 27% were bears.

At the other end of the spectrum, 59% of the investors were bearish on the Fixed Income sector, and only 17% were bullish.

“Now that the Fed has ended quantitative easing, there is uncertainty in the air regarding Fixed Income investments,” says Waksman. “With interest rates expected to continue rising, investor interest in hedge funds pursuing fixed income strategies is on the wane.”

Rank Order: 1 indicates most bullish, and 5 is most bearish.

Barclay Hedge Fund and CTA manager survey


Note: The survey of 57 funds of hedge fund managers and other large investors was conducted by BarclayHedge between November 13 and November 30, 2017.