HSBC Private Bank is maintaining its highest conviction overweight in hedge funds in the belief that hedge funds are well positioned to profit from the current market conditions and higher volatility. The private bank, on the other hand, cut its exposure to global equities in April.

“In contrast to the majority of 2009 in which investors were rewarded for taking on risk, we believe 2010 will be a rather different environment - a year of differentiation where equity and bond markets are likely to be lower than they have been since March 2009,” said Fredrik Nerbrand, head of global strategy at the firm.

“Therefore, it will be more difficult for investors to make money just by being 'long'; other strategies need to be implemented to increase expected portfolio returns. Hedge funds are traditionally well placed to look at relative value between assets and to exploit pricing anomalies,” he said.

The bank’s alternative investments group head, Peter Rigg, said that hedge fund managers who had positioned to capture the benefits of volatility were well placed to profit from gyrations in equities and currencies. He cited the turbulence linked to concerns about Greek debt and worries about Chinese moves to slow down its red-hot economic growth.

“Discretionary macro remains our highest conviction strategy and we expect managers to continue generating above-average returns for the foreseeable future. Our view has, if anything, been reinforced by the events of May [Greece/China]. The dispersion in the timing of interest rate moves between the emerging markets and the developed world, and the potential divergences within the Eurozone are creating long-term trading opportunities for this strategy,” Rigg said.