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First with Financial Comment from Arabia

What’s hot in hedge funds?

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Each year ArabianMoney attends the annual Hedge Funds World conference in Dubai and this event gives an excellent snapshot of the industry and what the super-bright hedge fund managers are thinking about the best investment classes of the moment.

This year the conference was higher in spirits than in the depths of the market lows last year. But attendance of 200-plus was well below the crowd of well over a thousand in the mid-90s. Of course Gulf countries have gone from boom to bust.

Regional cash flow

But the cash flow from the region still has to be invested somewhere. Diversification away from local real estate and even Gulf stocks is a theme now, perhaps a little belatedly. Hedge fund managers have some answers.

Currency funds are popular, and intelligent bets against the euro and pound are a theme, as is the rally in the dollar. Buy the dollar, or by proxy with the dirham or other Gulf currencies, and sell the euro and pound.

Emerging markets also made an unsurprising appearance. However, the new twist is that investors want funds that can go short as well as long. In other words, the warning is that emerging markets could quickly shift from boom to bust so a long-only fund is not recommended.

The consensus on global markets seemed difficult to reach. But overall the markets ‘seem to be at an inflection point’ warned one of the region’s best analysts. A downward shift followed by a volatile trading range was one view, albeit one that favored investment in the appropriate hedge fund.

Gold tipped

There was a convincing presentation on gold investment from Sentry Select Capital that stressed the dwindling supply of gold as an underpinning market phenomenon. Here the argument was to invest in smaller gold stocks for the best performance in the bull market.

Apart from these bold suggestions, the hedge fund managers were largely hedging their opinions this year and tended to focus on their own skills as active traders – perhaps the best justification for their fees and an argument against ETF cloning of their performance (see this article).

A thoughtful expert panelist explained that equities might well be locked in a trading range going nowhere like in 1966-82, real estate still looked incredibly overvalued and bonds were a bubble about to burst. That left commodities. If so living in an oil region might not be so bad after all.

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Written by Peter Cooper

March 3, 2010 at 10:19 am

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