The year started with a strong risk-on rally as declines in inflation prints in the United States and Europe fueled the narrative for “soft landing”—suggesting the economy could avoid a crash, while inflation continued to soften. However, the buoyant sentiments abruptly gave way to great uncertainty when Silicon Valley Bank’s stock plummeted in early March.
We expect macro hedge funds to perform well, given our expectations that market volatilities will remain elevated and our view that inflation risks are skewed to exceeding expectations. We expect long/short managers will benefit from positive short rebates.
Rising inflation and moderating growth are generally associated with a higher risk premium as investors start to price in a potential shift in market regime. In the past, global macro managers have generally benefited from better alpha opportunities that arise from volatility. With this backdrop, we expect macro hedge fund performance to be better than average next year.