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Currencies, Fed and Greece: The hedge fund verdict

Volatility has been creeping back into markets, creating headaches for investors as they try to navigate wild swings in currencies and oil, geopolitical uncertainty and diverging moves by global central banks.

But although traders have been forced to accept a new era of choppy trade, some hedge fund managers argued this is not all bad.

"Finally, some volatility is coming back to the market," Salvatore Cordaro, chief investment officer (CIO) at Tages Capital, told CNBC, highlighting that it was "quite unusual" to have volatility in government bond yields, for instance, even as they were moving lower.

"I think it is a reflection of people trying to anticipate what logical normalization, especially on the rates side, will mean for markets - the rates markets, but also equities and the rest."

Fed in focus

As fears from Ebola and a global slowdown spread, stocks plunged on October 15, with the Dow falling more than 400 points during the afternoon before recovering slightly.
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As fears from Ebola and a global slowdown spread, stocks plunged on October 15, with the Dow falling more than 400 points during the afternoon before recovering slightly.

One of the major drivers of volatility is the U.S. Federal Reserve, and markets have been hanging on every word from the central bank since a policy statement earlier this month, which prepped markets for an interest rate rise.

While the Fed dropped "patient" from its statement, referring to the normalization of monetary policy, Fed Chair Janet Yellen added that the central bank was not "impatient" either. She referenced the current weakness in inflation and the strength of the U.S. dollar.

Read MoreHow the smart money is set up for a rate hike

Other pressure points include unpredictable oil price moves, in the face of air strikes against Yemen and the possibility of an Iran nuclear deal, and Greece, which is in the midst of laboured talks with its euro zone creditors in an effort to establish long term financing.

Currency risks

Meanwhile, the dollar has advanced against almost all major currencies. Tages Capital's Cordaro said currency market volatility was creating massive opportunities for his firm at the moment, and it is a key play in his portfolios.

"The one thing that is very risky about currencies today is if their positioning in the market is in the obvious places," he said, speaking at the sidelines of the Investors Choice awards in London.

Read MoreNew hedge funds net most cash since 2004

Rather than looking at obvious currency pairs such as euro/dollar, Cordaro said he was looking to play the currency markets' less obvious trades, adding that some of the currencies with pegs to the dollar looked interesting.

"The Swiss franc in January was a very interesting development that nobody expected and I have to say, almost disappointingly, most people were not exposed to," he added.

UK vote looms

While the U.K. has been shielded from much of the volatility created by a renewed Greek debt crisis and weak euro zone growth prospects, investors are gearing up for what looks to be one of the closest general elections in decades.

Fund manager at Smith & Williamson, Mark Swain, has taken short positions -- or bets on a price decline -- in some U.K. sectors ahead of the vote in May.

"The sectors I would worry about if Labour were to get in would be the banks and the utilities, so much so we have put a small short on the utilities sector as a bit of a hedge against that," he told CNBC.

Swain added that supermarkets – which were a big theme last year and looked set to remain so – were also in focus.

"In the rhetoric we have heard they have cut thousands of prices and reconnected with the consumer, but I think that tells you all you need to know about the margin," he said. "We still think Sainsbury's and Morrisons are not a good place to be at the moment, so that is something we remain short in."

Greece

Greece has been another major theme for investors since radical leftist anti-austerity party Syriza won the Greek general election in January, with a promise to renegotiate the country's bailout. Greece is now set to present a list of reforms to EU leaders this week in an effort to seal a new funding package.

Read MoreCrunch time: Greece risks rising once again

CEO and CIO of RBR Capital, Rudolf Bohli, said he expects a deal between Greece and its international creditors soon, which will ultimately be a positive for the country's banking stocks. RBR Capital is a long/short equity hedge fund, which takes long positions in stocks that are expected to appreciate and short positions in those that are expected to fall.

"The reigning party in Greece promised maybe a bit too much -- like most of the politicians do when they want to get into power -- and now they have to find a compromise, but so does the euro zone," Bohli told CNBC.

"The chances of Greece leaving the euro are rather small, so if you have a settlement that is going to be positive for banks, I think it's time to put a little bit of money into Greek banks."