Displaying items by tag: volatility

Amid volatility that wreaked havoc on the market last year, hedge funds lost almost $125 billion worth of assets from performance losses, according to Hedge Fund Research (HFR) data. Investors also pulled their money from hedge funds last year, leading to a net outflow of $55 billion, the largest capital flight from hedge funds since 2016. This is a sharp reversal from 2021 when hedge funds saw $15 billion in net inflows. Volatility in the markets was triggered by high inflation, interest rate hikes, and Russia's invasion of Ukraine. Investors pulled $40.4 billion out of hedge funds that buy and sell stocks, a strategy that posted the worst performance for the year, losing $112.5 billion. Even macro funds that saw strong performance last year dealt with outflows. Institutional investors pulled $15 billion from these funds, according to HFR. In fact, the only hedge fund strategy that did see an increase in money was event-driven mergers and acquisition and credit funds that saw $4.3 billion in inflows. It was a tough year for performance overall for the hedge fund industry, as the HFRI 500 Fund Weighted Composite Index fell 4.2%. The index tracks many of the largest global hedge funds, marking the worst performance since 2018.

Finsum:The hedge fund industry lost $125 billion last year amid market volatility triggered by high inflation, interest rate hikes, and Russia's invasion of Ukraine.

According to new survey data from SoFi, more than a third (37%) of investors said they made impulsive investment decisions due to heightened volatility in the market last year, with younger investors significantly more likely to do so. Out of the 1,000 investors surveyed by SoFi, 29% said they bought a lot of investments, 17% said they sold a lot of investments, and 55% did not buy or sell. While impulsive trading during heightened market volatility is normal, it’s exactly what financial experts say not to do as it can hurt your portfolio over the long run. Instead, investors should stick to their investment plan and stay the course. Joel Mittelman, president of Mittelman Wealth Management, previously told Money.com that “Ironically, during a period of extreme volatility is exactly when you need the discipline and structure of some investment plan. Unfortunately, that's often when people throw the plan in the garbage." Investors are often unsuccessful at predicting the market, so staying invested is typically the best way to optimize returns over the long term. Plus, when you stick to your plan, you won’t miss out on the eventual recovery.

Finsum: A recent survey by SoFi found that 37% of investors made impulsive decisions due to the heightened market volatility last year, the exact opposite experts recommend.

In a year when almost every S&P 500 sector was in the red, the energy sector surged 64.56%, according to S&P data. While the portfolios of energy investors looked great, energy bills for the home were another story. High energy prices took a bite out of the household budgets for many. However, a reversal seems to be in play this month. The energy sector is now under pressure as natural-gas prices have fallen more than 60% from their 52-week high due to a warmer-than-expected winter. While energy prices falling is good for household budgets, it’s bad news for energy stock investors. Matt Portillo, head of research at Tudor, Pickering, Holt, told Barron’s that “The warmer-than-expected winter pulled forward the expected decline in natural gas price. Stocks could fall an additional 20% to 30% until they find a bottom.” Wall Street analysts expect more volatility in natural-gas prices in the months ahead, but patient investors can look forward to better valuations for energy stocks in the second half of the year. Paul Diamond, an analyst at Citigroup, wrote in a note Tuesday that “We expect the coming volatility to present a better entry point than is currently available and expect recent volatility to persist through the winter, at which point eyes will turn to the build for next winter.”

Finsum:With natural gas prices falling due to a warmer-than-expected winter, energy stock prices have taken a hit, which could lead to more attractive valuations in the second half of the year.

After a brutal year in the markets, you wouldn’t blame investors for being cautious in 2023. However, Fundstrat’s Tom Lee believes that history favors a 20% stock-market return in 2023. According to Fundstrat, “Historical data shows there is a high chance that the U.S. stock market may record a return of 20% or more this year after the three major indexes closed 2022 with their worst annual losses since 2008.” Lee basis this on the fact that in the 19 instances of negative S&P 500 returns since 1950, over half of those years were followed by the index gaining more than 20%. He and his team believe that three possible catalysts would enable stocks to produce 20% gains this year. The first catalyst is lower inflation. They expect lower inflation to set the stage for the Fed to stop raising rates and eventually start to lower them. Fundstrat also believes that wage gains will slow and volatility will fall. According to Fundstrat, equity and bond market volatility is likely to fall sharply in 2023 in response to a drop in inflation and a less hawkish Fed. Lee and his team wrote in a note that “Our analysis shows this drop in VIX is a huge influential factor in equity gains, which would further support over 20% gains in stocks.”

Finsum:Due to historical data, lower inflation, slowing wage gains, and falling volatility, Fundstrat’s Tom Less believes that the market will gain 20% or more this year.

After a tough year for fixed income, many bond strategists are expecting 2023 to be a great year for bonds. But where should advisors and investors look to invest? In an interview with Yahoo Finance Live, PIMCO Managing Director and Portfolio Manager Sonali Pier offered her perspective on where the sweet spot will be for bonds this year. She believes that despite potential volatility, “there’s a lot of room now for income-producing assets.” She stated, that “a sweet spot may be those Triple Bs within investment grade, for example, where dollar prices have come down a lot as a result of the interest rates rising as well as credit spreads having widened.” In the interview, she also talked about what areas of the corporate bond market to avoid. Her firm is most concerned with areas where there are “low multiples on businesses, low margins, high cyclicality, where it's very difficult to weather a storm like a recession when you have those types of things against you as well as still inflation as an impact.” She mentioned industries such as retail, autos, and wire lines to avoid that are seeing declines due to a “shift in investor demand as well as disruption from the supply chain.”

Finsum:PIMCO portfolio manager Sonali Pier believes that a sweet spot for bonds this year may be triple Bs within investment grade while avoiding industries such as retail, autos, and wire lines.