Research Team Update

Diversifying Strategies

March 2020

Diversifying Strategies - Research Team Update - COVID-19 (Coronavirus)

As the crisis progresses, diversifying strategies head Dr. Toby Goodworth shares a new research note exploring the performance of hedge funds and other liquid alternatives.

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Hedge funds. Managed futures, CTAs and systematic macro have held up well so far, with profits typically coming from long-bond and short-energy exposures. Trend-following strategies are doing particularly well at the time of writing. Yet some other hedge fund strategies are struggling.

Multi asset. Well-balanced portfolios with risk party-type construction have fared well so far, with “absolute return” strategies outperforming “total return.”

Alternative risk premia. The classic academic risk premia have held up well during the initial downturn, though some of the more complex “practitioner” premia are struggling.


It’s now time for “liquid alternatives” stand up and be counted. The last real opportunity for many hedge funds and liquid alternative strategies to demonstrate their diversification benefit was in Q4 2018, and the outcome was broadly underwhelming. Yet it’s important to be realistic: hedge funds are not explicit hedges or “silver bullets”, and negative returns do not mean a strategy is broken.

So far in March we are seeing huge dispersion in returns – not just between liquid alternative strategies (of course), but between individual managers operating very similar strategies. Losses aside, market environments like this are useful to help sort the “wheat from the chaff.”


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This commentary is for institutional investors classified as Professional Clients as per FCA handbook rules COBS 3.5R. It does not constitute investment research, a financial promotion or a recommendation of any instrument, strategy or provider. The accuracy of information obtained from third parties has not been independently verified. Opinions not guarantees: the findings and opinions expressed herein are the intellectual property of bfinance and are subject to change; they are not intended to convey any guarantees as to the future performance of the investment products, asset classes, or capital markets discussed. The value of investments can go down as well as up.

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