Multi-asset outlook Part 6 – Hedge Funds 2026: Increasing market divergences create opportunities for hedge funds

FERI is optimistic about the hedge fund environment for 2026 and sees increasing opportunities for trend-following and arbitrage strategies as well as for sector specialists.

Yield dispersion is likely to increase further on the stock market as prices respond more strongly to companies' fundamental business performance in the wake of ongoing monetary policy normalization. “This increasing differentiation creates an attractive environment for sector-specific long/short strategies, in which targeted fundamental analysis allows both long and short positions to be used profitably, regardless of general market developments,” says Dr. Thomas Maier, Head of Hedge Funds at FERI.

Positive environment for mergers and acquisitions – merger arbitrage strategy attractive

According to Maier, the event-driven segment also offers promising prospects. These are strategies that specifically exploit market inefficiencies surrounding company-specific events. Merger arbitrage is particularly interesting: “A more market-friendly approach by the US competition authorities is currently favoring M&A transactions, creating an attractive environment for these strategies.” An increasing number of large-volume acquisitions can already be observed. “We expect this trend to extend to medium-sized and smaller companies in the future.”

Relative value with mixed prospects

The relative value sector—which involves strategies that exploit valuation differences between closely related securities or markets—posted solid performance in 2025. “The outlook for 2026 is mixed,” says Maier. The environment is positive due to rising issuance volumes and increased volatility for convertible bond arbitrage strategies and those that specifically benefit from price fluctuations, such as volatility and equity arbitrage approaches. In contrast, the hedge fund expert expects a less dynamic market environment for interest rate and credit arbitrage strategies in view of declining interest rate volatility as inflation stabilizes.

Opportunities in trend-following strategies – particularly with a focus on emerging markets

The tactical trading segment comprises flexible trading strategies that tactically exploit market trends, macroeconomic opportunities, or mispricings to generate returns regardless of the general market direction. This segment includes both discretionary global macro approaches and systematic trend-following strategies (CTAs). “We expect increasing opportunities for trend-following strategies in 2026,” says Maier. This is because the emerging new macroeconomic order is likely to lead to more sustainable trends and greater divergence between individual asset classes. He sees opportunities for global macro strategies, particularly for funds focusing on emerging markets, as the economic and monetary policy divergences between individual countries and regions are most pronounced there.