Favored Hedge Fund Strategies for 2016

In the Hedge Fund Outlook article in Pensions & Investments, the fund strategies most likely to outperform in 2016 were global macro, long/short equity and long/short credit.  The survey included chief investment officers, strategists and allocators.  Excess returns would be generated by several factors:  differences in the economic recoveries of developed and emerging markets, volatility and the current high yield credit and energy situations.

Let's review each of the strategies' opportunities:

• Global macro - Dominic Wilson, managing director and head of strategy and research for MKP Capital Management, likes going long in US dollar and Euro and shorting currencies in emerging markets countries that are reliant on commodity exports.  He predicts that developed countries' economic growth will be higher in 2016.
• Long/short equity - Christopher Pucillo, CEO and chief investment officer of Solus Alternative Asset Management is shorting energy, minerals and mining companies.  He sees that sector as being in distress. There are companies that would be a great value to buy.
• Long/short credit - William Ferri, group managing director and head of global products of UBS Asset Management, and Daniel Och, CEO and executive managing director of Och-Ziff Capital Management, are bearish on corporate credit.  UBS does not like it generically.  Mr. Och is focused on the energy sector and is predicting that " a lot of (energy) firms will be experiencing distress" and may be attractive investments in 2016.