Factors influencing Hedge Funds and Equity Markets 

The hedge fund industry's assets improved in Q1 as of March 31, 2019, to $3.18 trillion, supported by strong investment performance in the quarter. The increase in value overcame other restrictions. 

The current asset level reported by the funds is the 5th highest, and 1.9 per cent low from September levels. The largest funds witnessed outflows. 

The fund AUM had an outflow of $5 billion, with total assets of $15.2 billion in Q4 2018. Smaller funds witnessed outflow of $1 to $5 billion. 

Energy sector ETFs were one of the worst-performing, which declined 4.3 per cent over the past months, and the health sector improved significantly. 

The Chief Investment Strategists who were actively managing multiple assets, factor-based, long-short, and various other portfolio diversifiers - are conducting behind-the-scenes reviews to identify the issues responsible for the poor performance in 2018. 

• Last year, we witnessed an unfavourable macroeconomic environment, higher market volatility, and anxiety caused by changes in geopolitical trade situations causing inflation.  

• The return of alternative risk premium grew to an average of 2.46 per cent in Q1 2019, which was a negative (-3.02%) in the last quarter ending December 2018.  

• Even the diversifiers in the institutional portfolios, which are less expensive and liquid, did not deliver the expected returns. 

• Institutional investments of long-term investors like endowments, pension funds, and others could not incorporate strategies to handle the extreme volatility. 

• In the last year, the position shifted in favour of equities as a substitute for bonds, where the strategists were looking for long equity positions. At the same time, the global markets continued to deliver strong returns. 

• In terms of long-term risks, the equity markets are no longer bullish. 

• The medium-term investment of 6 to 12 months has a bullish trend, while the short-term is neutral. 

• Some stocks remained bearish even in the short term. 

Predictions for 2019 

Factors that disrupted the markets last year include the changes in trade agreements and a decline in the real estate markets. 

Trade issues have not been resolved, but the stock markets can resume gains even in the current year, while the housing markets may come out of the negative zone. 

The job market shows positive indications and inflation-adjusted corporate profits are improving. 

This time, banks are not lending as generously as in 2008 as they are facing regulatory restrictions, and a short-term uptrend can be seen in several options. 

Overall, major fixed-income asset classes were positive in the month as per Bloomberg Barclays U.S. Aggregate Bond Index was 1.92 per cent, corporate fixed-income credits returned 2.50%, and high-yield indexes gained 0.94 per cent. 

Oil supplies were hit by OPEC cut in production, and USD remained 0.72 per cent up, on average, against the set of other currencies. 

Many other positive factors supported the equity hedge, merger arbitrage, market neutrality, and other strategies. 

Analysts predict the equity markets are no longer bullish regarding long-term investment, while the short-term is highly random and medium terms have almost neutral trends.