Trends Going Into 2014

Chidem Kurdas

Whatever the long-term effects of the Federal Reserve’s slow-motion-taper, some established patterns show no sign of reversing.

One, investors continue to reduce the fixed income portion of their portfolio as they have for most of 2013. This is most noticeable in mutual fund flows.

Two, the capital that remains in bonds and credit is looking for flexible, free-wheeling strategies that can respond nimbly to changes. That may be a factor in Goldman Sachs wanting to merge a somewhat plain-vanilla fund into a long/short credit vehicle.

Three, plenty of investors believe they should have some money in hedge funds despite the puny return in 2013 compared to the S&P 500 index. The idea of constructing a portfolio consisting of index investments on the one side and hedgies on the other is not new, but its appeal may be stronger now.

Four, there is some preference for hedge funds driven by events and opportunistic investing.

People may even favor certain aggressive activist investors. This is surprising, given the very public problems – and losses – Pershing Square Capital’s Bill Ackman suffered with Herbalife and Edward Lampert with Sears.

But activist investors have different styles; you look for a style that is likely to succeed in the current environment. Some American investors like London-based The Children’s Investment Fund run by Chris Hohn, who has a mixed track record. His most recent stockholder fight was over the privatized Royal Mail.

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