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Global equity market-neutral hedge funds shine

FILE PHOTO: New York Stock Exchange (NYSE) building after the start of Thursday's trading session in New York

By Patturaja Murugaboopathy

(Reuters) - Global equity market-neutral hedge funds have lured investors as they can deliver better returns in times of global rates uncertainty and geopolitical tension than traditional stock markets.

WHY IS IT IMPORTANT

Equity market-neutral hedge funds (EMN) execute strategies that capitalise on discrepancies in stock valuations by purchasing undervalued securities and selling overvalued ones, making them less exposed to fluctuations in broader market indices.

Analysts say volatile market conditions are likely to result in mispricing of stocks that these funds are well-equipped to exploit.

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They also say these funds could also offer a hedge against market instability in the face of significant events, including the U.S. Presidential elections, global interest rate policy shifts, and concerns about an economic downturn.

WHAT THE NUMBERS SAY

According to HFR data, global equity market-neutral hedge funds achieved a 4.1% gain in the first quarter of this year, marking the highest quarterly increase in nearly 24 years.

The data also showed the funds attracted an inflow of $942.8 million in the first quarter of this year, compared with an outflow of $95.9 million in the previous quarter.

QUOTES

"With a strong start to the year, I expect equity market-neutral (EMN) hedge funds to continue their success through Q2 and Q3 of this year, especially compared to the market as a whole," said Jeff McClean, chief executive officer at Solidarity Wealth.

"EMN funds provide diversification to investors with a low correlation to the overall market. For institutional investors, this can be incredibly important as they need to provide return and/or income to their retirees or pension holders in good and bad markets, " he said.

(Reporting By Patturaja Murugaboopathy; Editing by Vidya Ranganathan and Barbara Lewis)