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Man Group boss Luke Ellis defended the hedge-fund industry from suggestions that trend following strategies were to blame for the surge in volatility that rocked global markets last week.
Commodity trading advisers, which bet on market trends and across asset classes, did sell positions but not indiscriminately, the chief executive officer of the world’s largest publicly-traded hedge fund said in an interview with Bloomberg Television. Instead, the market fall was triggered by worries about inflation that would usually tend to hurt bonds.
“If we actually get significant inflation, then we are going to see a big selloff in bonds and then you’re going to see equities have to reprice,” he said. “Equities are a perfectly reasonable valuation if you assume sub three percent tenures. If we get four percent tenures equities are not priced right.”
The market plunge caused volatility to spike last week, hurting those who were betting short on turmoil and raising suspicions that quants had caused or exacerbated the sell off. Volatility will remain higher than last year’s abnormally low levels, Ellis said, and he warned that buying on dips has become “folklore” but is not always the right strategy.
Man Group got out of turbulent markets early last week as the correlation between equity and bond markets changed, Ellis said. That did not stop one of its main funds from falling last week. Man AHL Diversified Futures plunged about 4.6 percent on Monday, leaving it flat for the year.