As 2023 draws to a close, the performance of hedge funds has been notable, averaging a 5.7% return through November, according to recent market research.
Notably, strategies emphasizing equities and credit outshone, while macro and managed futures trailed behind. This performance, however, stands in stark contrast to the S&P 500’s robust 24% gain by December 20.
With the Federal Reserve contemplating rate cuts in the imminent future and a late-year rally in bond markets, individual investors are now left pondering the pivotal question of which sectors will captivate hedge funds’ capital in the unfolding year of 2024.
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Fed cuts could favor tech, healthcare, and consumer sectors
Over the past two years, investors were busy developing strategies that would help them navigate a hawkish Fed, as interest rates soared to the highest level in over 22 years.
As such, some analysts believe that rate cuts will bode well for tech and defensive sectors, or in other words – growth over value.
Historically, sectors like technology, healthcare, and consumer are sectors that have delivered strong performance after the Fed’s first rate reductions, said Citi strategist Scott Chronert.
“Health Care, Consumer, and Tech sectors have been notable outperformers following Fed rate cuts. Yet, directional sector action and dispersion tends to be more narrow post cut than it was leading into it.”
Chronert wrote.
From a broader perspective, the expert believes that the S&P 500 index will gain more than 10% on average in the year following the first rate cut. Recent projections showed that the central bank is planning to implement three reductions in 2024.
Macroeconomic uncertainty
According to Fidelity Investments, one of the biggest mutual fund firms in the US, the sector choices for 2024 mainly hinge on unpredictable macroeconomic factors.
As such, a recession-free soft landing may favor cyclical sectors like materials, industrials, and consumer discretionary, while a downturn could elevate defensive sectors such as health care, utilities, and consumer staples.
But despite this uncertainty, Fidelity’s portfolio managers continue their hunt for potential opportunities. Notably, the firm is focused on identifying potential AI adoption beneficiaries in technology and communication services, novel weight-loss drug manufacturers in health care, and prospects aligning with the global shift toward decarbonization in the utilities sector.
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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
