Pricing dislocations and adjustments between companies, industries, regions and asset classes due to the impact of COVID-19 offer opportunities for select hedged strategies, according to K2 Advisors. Brooks Ritchey and Robert Christian provide the team’s third quarter hedge-fund strategy outlook.

Strategy Highlights

Long/Short Equity–Europe
We believe Europe will benefit from an inflow of foreign capital as investors start to feel more comfortable with the risks inherent to the region. In our opinion, the upside of European managers’ long books remains elevated as persistently overlooked companies gain more traction.

Long/Short Credit
Recent dispersion in high-yield bonds could provide managers with a better environment in which to pick specific credits on both the long and short sides.

Macro Discretionary
Market focus has started to shift to the prospect of fiscal expansion, particularly in Europe, which may create directional and relative value trading opportunities for discretionary managers.

Macro Themes We Are Discussing

COVID-19: Will there be a second wave pandemic, or will economies reopen successfully?

As economies reopen and the rate of COVID-19 case growth slows, the logical next question is “will there be a second wave of infections?” While impossible to predict, the recent social distancing efforts may well last until a safe vaccine is found and/or the virus is otherwise eradicated. Companies involved with cashless payments, online product and service offerings, in-home entertainment, and other non-contact services may recover from the recent economic lockdown more quickly than traditional retail business models.