Big money touts esoteric bets over traditional stocks, bonds

September 13, 2016 6:55 PM EDT

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By Svea Herbst-Bayliss and Lawrence Delevingne

NEW YORK (Reuters) - Gold, emerging market currencies, real estate in Europe and buying market insurance are some of the non-traditional bets hedge fund managers are making to earn returns at a time many investors are struggling and traditional stock and bond market bets look risky.

The money managers' comments came at the CNBC Institutional Investor Delivering Alpha Conference in New York, an annual event that features many of the investment industry's best known names.

Mark Carhart, who runs $2.5 billion Kepos Capital, said he likes such foreign currencies as the Turkish lira, Brazilian real and the Indian rupee. Carhart warned that a traditional portfolio of 60 percent stocks and 40 percent bonds was dangerous by itself.

Paul Singer of $27 billion Elliott Associates said gold is still relatively inexpensive and should be more widely owned in portfolios, especially when longer term bonds offer little reward for substantial risk.

Gold is often a hedge against inflation especially when investors worry that central bankers may not be able to appropriately handle a rise in inflation.

And Boaz Weinstein of $1.7 billion Saba Capital said it is prudent to buy volatility protection, essentially insurance against large market swings.

One of the conference's major themes was how to make money as interest rates remain low but growth is similarly low and investment returns been more muted than in the past years.

"The job is to stay long term focused. There are still people sitting in cash afraid of what happened in 2008," said Mary Erdoes, chief executive officer of J.P. Morgan Asset Management.

The Standard & Poor's 500 index has climbed 4 percent since January and the average hedge fund has climbed 3.5 percent this year, research firm Hedge Fund Research reported.

Hedge funds have seen billions of dollars in capital pulled since the beginning of the year as pension funds and other institutional investors reacted to losses as well as high fees.

But even amid the more downbeat mood compared to past years, investors said they did not expect a wholesale exodus from hedge funds.

"It is an unfair comparison for hedge funds to be compared to the Standard & Poor's 500," said Dawn Fitzpatrick of UBS Asset Management. "Their role in a portfolio is as a diversifier."

Fitzpatrick and other investors appealed to clients to stick around, saying that patience is necessary now. "That is really hard right now," she acknowledged.

(Reporting by Svea Herbst-Bayliss; Editing by Cynthia Osterman)

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