Interview, Fireside Chat
Navigating Market Volatility
- Clients anticipate reduced risk factor exposure following the March breakdown in correlations between growth and defensive factors, borrow factors, and earnings outlooks.
- The historical relationship between popular long and short crowdedness factors, which persisted for approximately two years, fractured in March and remains unresolved.
- Investors expect to resume comfort with gross equity or cash exposures across all strategies once risk factors are fully priced in.
- Current positioning includes selective additions to long positions in information technology and consumer discretionary sectors, hedged via macro products, alongside the reduction of defensive sector overweights in utilities and consumer staples relative to the S&P.
- Asset managers plan to analyze fundamental views impacted by technical de-risking dynamics, including the selling of long positions and covering of shorts.
- The utilization of ETFs to hedge market risk is projected to rise as exposure to single-name basis positions increases.
- Investors and hedge funds are expected to become front-footed by deploying capital into previously closed managers.
- Increased activity is predicted in dislocated credit and mortgage markets over the coming few months.