Associates’ China arm told investors it has turned less bullish on gold and is “prudently optimistic” on local stocks, shifting some of its views after a wild quarter as the fund gives human managers more control over allocations.

The Shanghai-based hedge fund firm said in its September investor letter that it has gradually reduced its overweight gold holdings as higher interest rates push up opportunity costs and rising oil prices curb demand from energy-importing nations like India.

The firm also sounded a note of optimism about Chinese assets, arguing that stock market declines in the third quarter were largely driven by liquidity, valuations aren’t high, policy favors long-term capital formation and more money may flow into equities given low bond yields.

Bridgewater, which said it was keeping an “active” stance on Chinese assets, told investors in the letter that the comments only reflected its views at the end of September as its perspective keeps evolving.

These shifting investment views are set to play a bigger role in shaping the performance of one of the most successful hedge fund businesses in China, as Bridgewater puts more emphasis on so-called active management — humans making trading decisions. The firm’s more than 60 billion yuan ($9 billion) of assets under management in China put it far ahead of global rivals like Two Sigma Investments and D. E. Shaw & Co.

“While active management is highly challenging, successful active management can help consistently add value across market cycles, enhancing returns while offering protection in adverse environments, including those that are unfavorable for long-only asset portfolios,” the company said in the letter seen by Bloomberg News. The firm declined to comment.

The local All Weather Plus strategy recorded a 5.3% return before fees this year through Sept. 30, after taking a roughly 1% loss in the third quarter, according to the letter. The All Weather part, which spreads risks in a balanced fashion across asset classes, contributed a 0.1% return in the last quarter as profits on commodities and bond trading offset losses from the stock-market selloff. The actively managed segment — known as Alpha — booked a 1.5% loss in the quarter, with stock holdings being the biggest drag.

Bridgewater China launched the onshore fund in 2018 with purely All Weather portfolios and introduced active management at the end of 2019 before increasing its risk weighting in 2024, according to the letter. It expects a rising share of active management will enhance the strategy’s flexibility and resilience over time, without materially changing the long-term risk and return characteristics.

Active management made positive contributions in two-thirds of the All Weather Plus strategy’s more than 20 years of history, generating an average return of 6.4% in the positive years and a 1.5% loss in the negative ones, according to the letter.

For the last quarter, such views helped contain losses. The company’s stance on oil shifted from neutral at the start of the quarter to increasing allocations as it anticipated more demand from users not sensitive to high prices — a move that proved correct, it said, adding that its preference for boosting allocations to gold early in the period also brought some returns.

Oil prices may trend higher in the fourth quarter amid supply disruptions and low inventories, the firm said in the letter. On gold, it said that although diversification needs from central banks and private investors provide long-term support, the positive and negative factors driving prices are “basically balanced” amid interest-rate hikes.

While the selloff in artificial intelligence stocks and geopolitics brought wild market swings in the recent quarter, the All Weather Plus strategy “showed some resilience” and demonstrated the value of having diversified sources of returns, the firm said.

“Looking ahead, we believe diversification will remain critical,” the company wrote. “At the same time, we see many opportunities arising from market mispricing and will, as always, seek to capture these opportunities through active management.”