AXA IM favours liquid hedge fund strategies

By Laurence Fletcher

LONDON (Reuters) - Equity markets are set to make little progress during the rest of 2008, but more liquid hedge fund strategies such as global macro and managed futures are likely to perform well, according to AXA Investment Managers.

March was a tough month for the $2.6 trillion (1.3 trillion pound) hedge fund industry, during which AXA's Alternative Premium fund of hedge funds lost an estimated 2.8 percent as many of its holdings lost money.

Chris Manser, global head of AXA's fund of hedge funds, takes a cautious view but sees opportunities to make money.

"We're very cautious. We think the banking crisis will take longer and the whole liquidity issue is not going away quickly. Banks are very reluctant to trade with each other," he said at a journalist briefing on Wednesday.

"I think equity markets over the course of the next nine months will not increase significantly ... We see continued volatility because liquidity is not great and because hedge funds and banks are very cautious in increasing risk. We'll see bear market rallies, and we will just as easily see the market come back."

Almost 21 percent of AXA Alternative Premium is in global macro strategies, which typically benefit from increased volatility in currencies, sovereign debt and other instruments, while just over 7 percent is in managed futures, which tend to be relatively uncorrelated to other asset classes.

Both strategies tend to invest in highly-liquid assets, which Manser believes are a good place to invest at present. A number of less-liquid strategies have come unstuck since the credit crisis began last summer.

"We continue to favour more liquid strategies, more trading-oriented strategies. Large-cap equities in more opportunistic strategies, then global macro, CTAs (managed futures).