ABN Amro Private Banking is moving more money into hedge-fund investments that are profitable amid increased volatility in credit and equity markets, according to Chief Investment Officer Didier Duret.
ABN Amro, which manages 164 billion euros ($207 billion) for clients, today raised its allocation in hedge-fund investments to overweight from neutral, meaning it holds more than are represented in global benchmarks.
The Chicago Board Options Exchange Volatility, a gauge known as the VIX that measures the amount investors are paying for protection from losses on the Standard & Poor’s 500 Index, began June at the highest level since December. Bank of America Corp.’s MOVE Index, which measures price swings based on options on differing duration Treasury bonds, ended last week at the highest level this year.
“Hedge funds are in a stronger position to extract value and preserve capital than constrained ‘long-only’ investments in bonds and equities,” Duret, who is based in Geneva, said in a phone interview. “Global-macro hedge funds can better preserve capital and make money when financial markets ignore fundamentals and are more driven by macroeconomic and policy risks.”
More than $5 trillion has been erased from share prices around the world since March amid concern growth is slowing in the U.S. and China, the world’s largest economies, and as Europe’s debt crisis intensified.
Optimism among global asset allocators tumbled this month as money managers sold equities and hoarded cash at the highest level since 2008, a Bank of America survey showed last week. Respondents managing $522 billion reduced their holdings in stocks to underweight for the first time in seven months, meaning they own less than are represented in benchmarks.
ABN Amro maintained a neutral stance on equities, favoring North American stocks and avoiding European shares. The money manager is holding less commodities investments than are represented in global benchmarks and is overweight corporate bonds.
The Stoxx Europe 600 Index ended little changed yesterday as surging Spanish bond yields tempered optimism about Greece’s attempts to form a coalition government.
“The positive Greek election result does not change asset-allocation dynamics,” said Duret. “Uncertainty remains beyond the relief rally in equities as well as for the euro. A neutral position on equities balances the risk of a new crisis moment and positive market reaction created by forceful policy action.”