European hedge fund investors will heavily favor long-short equity in the third quarter and the year ended June 30, 2006, according to the Hedge Fund Strategy Barometer summer survey, conducted by Tara Capital. For the year, about 22% of respondents said long-short equity is their most preferred hedge fund strategy, followed by managed futures/CTAs at 13%; multistrategy funds and convertible arbitrage funds at about 11% each; merger arbitrage and global macro-discretionary at about 9% each; and equity market-neutral and distressed debt strategies at about 7% each.
In the third quarter, the Hedge Fund Barometer predicts the most popular hedge fund sector will be emerging markets long-short equity, with 44% of respondents indicating they intend to increase allocations to the strategy. In a four-way tie for second place, 43% of investors indicated increased exposure to global long-short equity, sector specialist long-short equity, dedicated short strategies and managed futures/CTA. The least popular strategy in the third quarter will be relative value fixed income, according to the survey, with 57% of respondents indicating that they will reduce their exposure.
Tara interviewed European institutional investors with more than $72 billion in hedge fund commitments.