Overall, EMN managers generally are more useful for portfolio allocation during periods of non-trending or declining markets because they typically deliver returns that are steadier and less volatile than those of many other hedge strategy areas.
The above text is given in curriculum module.
can anyone explain?
The statement suggests that Emerging Markets (EM) hedge fund managers can be useful for portfolio allocation during periods of non-trending or declining markets. This is because EM hedge funds generally have a lower level of volatility and provide steadier returns compared to many other hedge strategy areas during such market conditions.
In non-trending markets, where there is no clear upward or downward trend in the market, EM hedge funds can be useful because they typically invest in emerging markets, which have less correlation to developed markets. This means that their returns are less likely to be affected by market movements in developed countries, making them a potential diversification tool for investors.
Similarly, during declining markets, EM hedge funds may outperform other hedge strategy areas due to their focus on emerging markets. While developed markets may be experiencing economic downturns, emerging markets may still be growing, providing opportunities for EM hedge funds to generate positive returns.
However, it’s important to note that EM hedge funds are not immune to market volatility, and they may still experience significant drawdowns during times of extreme market stress. Additionally, investing in EM hedge funds carries inherent risks due to the less developed nature of the markets they invest in, including political and economic instability, currency fluctuations, and liquidity risks. Therefore, investors should carefully consider their risk tolerance and investment objectives before allocating to EM hedge funds.
In this strategy B=0 then how market conditions are affecting?
And if we consider only our country ,then how in non trending scenario this works best?
It would be great if you can clear my doubt.