By Nell Mackenzie, Carolina Mandl and Summer Zhen
LONDON (Reuters) - Next year's top pick for hedge fund strategies is so-called macro, with U.S. President-elect Donald Trump centre-stage as investors bet on how global policy decisions will impact economic conditions and play out in financial markets.
Hedge fund returns benefited this year from wild market swings sparked by politics such as November's U.S. election, and twists in monetary policy such as Bank of Japan rate hikes.
And investors are readying for more volatility in the year ahead, seven hedge fund investors and portfolio managers told Reuters and a recent survey showed.
"Macro seems interesting now given a more turbulent political backdrop and what it means for both fiscal and monetary policy," said hedge fund investor Craig Bergstrom, chief investment officer at Corbin Capital Partners.
U.S. tariff hikes under a new Trump administration could deal the global economy a fresh blow, further weakening China's yuan and the euro, while adding to inflationary pressures that slow the Federal Reserve's ability to cut rates.
Although hedge funds specialising in cryptocurrency trounced other strategies in 2024, with data provider Preqin estimating a 24.5% annualised return, investors are less convinced for 2025.
Macro ranked first and crypto last in a list of hedge fund strategies for 239 investment firms surveyed by Societe Generale in November.
Around two fifths of those surveyed aimed to invest in macro, the client note seen by Reuters said, adding that interest in government bond trading had fallen. Meanwhile, funds trading commodities and equities ranked second and third.
Jordan Brooks, co-head of the Macro Strategies Group at investment management firm AQR agreed that sovereign bonds were becoming less of a key investment theme.
"Inflation is now more balanced. From here, we think things are less certain across the board," said Brooks, adding that the $7.5 trillion a day currencies market would be in focus.
CRYPTO? NOT YET
Although Trump has embraced digital assets, promising friendly regulation and to accumulate a stockpile of bitcoin, some hedge fund investors are not convinced.
"We haven't seen a lot of institutional investor demand on the solutions side for crypto trading strategies," said Carol Ward, head of solutions at the $175 billion Man Group.
Benjamin Low, a senior investment director at Cambridge Associates, said some Asia-based funds had explored small-scaled crypto investing, but nothing had come of it yet.