Global Macro Survey Highlights:

• Investors are gradually extending risk, amidst an improved outlook for global markets, according to a survey of more than 350 global investors conducted by Barclays. 17% of investors said they were running greater than normal exposure to risk (vs. 10% in December) and 23% had light or very light positions, compared with 38% in December. US equity prospects are upbeat, supported by the perception that Fed policy will remain loose, and while risks from Europe preoccupy investors, most believe they will not lead to a global financial event.

• Market participants are significantly more constructive about the outlook for global equities. The majority of investors expect equities to offer the highest returns over the next quarter. This is the first time in two years that more than 50% of investors have favoured equities over other asset classes in the next quarter. Meanwhile, the fraction of respondents that favour commodities and high quality bonds over other asset classes fell further to 7% and 10%, respectively. Most investors also perceive equities to be the likely outperformer in emerging markets (EM) over the next three months.

• Equity investors seem to be more cautious after the strong rally in the major markets in Q1. As such, they are gradually paring back their near-term returns expectations. 52% of respondents expect returns of between -5% and 5% in the next three months (vs. 45% in December) and 37% expect returns between 5-10% (vs. 44% in December).  Most respondents continue to see the asset class as fairly priced. But the fraction that believe the asset class to be undervalued dropped from 39% in December to 28% in March.

• Investors are also cautious due to lingering macro risks, citing the euro area crisis and worsening growth prospects in the US and the euro area as major concerns. Close to 60% of respondents see the low volatility environment of the past several months as the calm before another storm. More than 40% of investors considered the euro area crisis to be the most important risk over the next 12 months and slower-than-expected growth in the US and Europe is seen as the biggest risk to equity markets.

Read the entire report here.

ATTACHED FILESBarclays Global Macro Survey Q1 2013 (pdf format)

Hedge fund assets will increase by 11% in 2013 to an all-time high of $2.5 trillion, according to the 11th annual Alternative Investment Survey from Deutsche Bank.

Almost 60% of institutional investors surveyed increased hedge fund allocations in 2012, including two-thirds of pension fund respondents. Sixty-two percent of all respondents expect to increase hedge fund assets this year.

The 11% anticipated increase this year is attributed to $123 billion in net inflows and $169 billion in performance.

Almost half of pension fund respondents are expected to increase hedge fund allocations by $100 million or more this year. Emerging markets, event-driven and global macro hedge funds are the most popular type of strategies pension funds are seeking this year.

Read the entire article from Pensions & Investments here.

Amongst the renewed optimism that has taken hold of Australian equity markets it is often overlooked that the ASX200 has only had one negative return in the last fourteen months. Most investors recognise that the current rally began last July, but forget the pessimism that permeated the market in the first half of 2012.

With this in mind it is worth reading AFM's reviews of the absolute return sector in Australia, one covering 2012, and the other taking in longer term over five and ten years. Most readers will be aware that in 2012 the equity market (as measured by the ASX200 Accumulation Index) outperformed both the average and the majority of funds, but over the longer term the picture is quite different.

The five and ten year review, entitled Volatility eats Returns, shows that over five years the average fund (net of fees) clearly outperformed the ASX200 Index with less volatility, while over ten years funds and the ASX200 Accumulation Index both returned 10%, but once again funds had half the volatility.

The devil of course is in the detail, and the use of averages. The best performing funds can, and do provide the "high return, low risk" returns the marketing likes to promote, while the worst provide the hedge fund headlines the media love to quote. And just to confuse the issue, different strategies and funds perform differently in differing macro economic conditions. Finding the elusive all weather performer is not easy.

Both reports are available here.

Enjoy your week-end.

Regards,

Chris.