Trends Watch: August 9, 2018

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks to Bruno Schneller, CIO/Co-Founder, Skënderbeg Investment Management AG.

What is your outlook for alternatives?

Last year saw a rebound in hedge fund performance and 2018 looks set to continue that trend.  While volatility was near multiyear lows at the start of the year, macroeconomic factors such as rising global inflation, increased political uncertainty and divergent monetary policies have contributed to the increased volatility and lower correlation levels between individual securities.  Both can be positives for hedge funds.  Now that the "melt up" environment appears to have subsided, we believe hedge funds will have the opportunity to produce attractive results from both long and short positions.  As always, manager selection will remain a critical component in allocation decisions as there will likely be greater dispersion amongst returns due to an increase in volatility as the market cycle progresses.

What is your outlook for the economy?

By historical measures, equity valuations are high and have been for a prolonged period of time, despite the recent volatility fueled hiccup in February.  Equally, one could make a very strong argument that valuations are justified given strong global growth and fundamentals.  However, we have a number of strong headwinds to contend with.  The "most hated bull market in history" has been largely driven by extraordinary accommodative monetary policy globally.  That particular cycle has ended, and we now face a host of different challenges that will be propelled by an unwinding by the Federal Reserve, higher interest rates and rising inflation (not to mention the potential for trade wars and geopolitical risks).