NEWS
5 Sep 2013 - Hedge Funds: 2 strategies working in 2013
HEDGE FUNDS: 2 STRATEGIES WORKING IN 2013
Just as the various sectors of the stock market are subject to different performances over time, so fund strategies and styles of portfolio management differ over the investment cycle. This makes an investor's selection of managed funds, and particularly actively managed and alternative funds, vital to their portfolio performance.
The attached table shows the performance of each strategy in AFM's database over the past seven years, and highlights the inconsistency of performances, and as investors know well, that of financial markets in general.
There are a number of clear messages to take from this table in addition to the obvious one that the performance of the market itself is subject to extreme swings. Firstly, when the market performs strongly ('07, '09 and 2012) it outperforms most alternative or active strategies. However, when the market falls or performs badly, such as in 2008, 2010 and 2011, nearly all alternative and actively managed strategies perform better than the market.
This is logical and to be expected. Generally non equity assets and markets are not correlated to the share market (although this didn't hold completely true during the GFC) and the "short" side of many hedge fund portfolios acts much like an insurance policy: When the market goes up and the short positions underperform, you don't need insurance even though you have paid for it, but when the market goes down the short insurance "pays" for itself.
It's not quite as simple as that of course, as the ability of many fund managers to reduce their overall market exposure by moving to cash in negative markets also provides a significant opportunity to avoiding risk.
Equally, different funds within each strategy can provide wide ranging performances depending on the skill and implementation of their respective portfolio managers. In the attached report, Chart 1 shows the performance range of individual funds over the past 12 months, with performances ranging from -50% to +75%.
Best Performing Strategies:
Taking the past 12 months the range of performances of differing strategies has once again been wide ranging, as can be seen from Chart 2 in the attached report. Only two outperformed the strongly rising ASX200, but all the top performing strategies were equity based.
Over the past 12 months one strategy that has performed strongly is Equity Long, with an average performance of 26.37% benefitting from the broadly rising market. Some might question why "long only" funds are included in AFM's tables, but such funds generally have very concentrated, high conviction portfolios, some with only 15 or 20 positions, and many are able to adjust overall market exposure by holding significant cash exposure.
Equity 130/30 has performed even better with a performance over 12 months of +29.62%. Why? Because in equity 130/30 the manager short sells 30% of the portfolio by value, and uses the proceeds to increase their long exposure to 130%. Providing the stock selection is on target, the overweight long positions outperform the market, and the short positions either provide some protection, or add to performance if those stocks fall in value.
That's great in a rising market, but the opposite can occur if the market declines and the manager is locked into an overweight long exposure. This is clear when looking back over the seven year strategy performance table at the start of this article. Generally when the market falls, Equity 130/30 funds suffer more than the index and other equity funds as the leverage they provide magnifies the extent of the downside risk.
It is worth noting that there are variations to Equity 130/30 which AFM includes in the overall strategy category, such as 120/20 and 150/50. The logic and implementation tend to be the same, with the difference being the extent of the leverage or market exposure. Effectively these strategies all have fixed net exposures (calculated as their total long positions minus their shorts) of 100%, but with gross exposure (long plus short) of 140, 160 or 200%.
Critics of the 130/30 style argue that being locked into a fixed market exposure in all market conditions doesn't provide sufficient flexibility to dial the portfolio's risk levels either up or down as conditions change. However the strategy is gaining new followers amongst both fund managers and investors, particularly amongst previously long only advocates who are trying to find some risk mitigation in falling markets. Others argue that the leverage created by the gross exposure increases returns, but like all leverage also increases risk.
The alternative to Equity 130/30 is simply Equity Long/Short, which implies that the level of long, short, gross and net market exposure adjusts in line with the fund manager's view of the prevailing market and specific stocks. Normally these funds have a bias to the long side of the portfolio, but performances are governed by both their stock selection and overall market exposure. These funds make up the majority of the "actively managed" universe, both in Australia and overseas.
This in turn does create some bias in these performance tables as they are not adjusted for the weight of funds under management. Equally in those strategies with fewer funds the potential for statistical risk is greater. As always there's no substitute for research, and understanding each fund's investment strategy.
Chris Gosselin, Australian Fund Monitors ©
2 September 2013
Ph: 612+ 8007 6611
This article was written for the Eureka Report and published with permission on 2 September 2013
Hedge Funds: 2 strategies working in 2013 (pdf format)
4 Jul 2013 - Self directed superannuation funds
In this Opalesque.TV BACKSTAGE video, Chris discusses:
- The wide range of strategies offered by Australian hedge funds
- The strength of the Australian regulator
- Attractive liquidity terms and general outperformance of Aussie hedge funds
- Who invests into Australian hedge funds?
- High net-worth / self directed superannuation funds: the most attractive investor base for hedge funds
Chris Gosselin has been in the financial markets since 1986, initially in equities broking in Sydney and Melbourne prior to focussing on information distribution. He has been in the hedge fund sector since 2003, and established Australian Fund Monitors in 2006. Australian Fund Monitors provides a range of research services including due diligence, analytics and fund rankings, servicing both local and offshore investors.
6 Jun 2013 - One big problem for the hedge fund sector
ONE BIG PROBLEM FOR THE HEDGE FUND SECTOR:
THEY'RE AN EASY TARGET
It seems most people's opinions on hedge funds generally fall into one of two categories: Firstly there are those who claim to understand them, and frequently criticise them in the process, and secondly there are those who admit they don't understand them. The problem is those in the second category tend to listen or believe the opinions of those in the first.
And the problem for the hedge fund industry is that as a whole it's an easy target, as the funds that make up the sector is extraordinarily broad and diverse. As a result finding hedge funds or hedge fund managers who fit the negative stereotype is not difficult, in part because they're the ones who get most of the publicity.
I have to admit to potentially being a little biased in the good vs. bad hedge fund debate, and even if I'm not most readers will assume that I am anyway. However it is worth pointing out some facts about the hedge fund sector, while at the same time accepting the reality that not all of them are perfect, and only a minority are truly "best of breed".
So firstly let's look at what makes up the universe. ASIC in its Regulatory Guide 240, is quite clear and correct when it states that there's no firm definition of a hedge fund, but provides a range of features which it uses to identify them. These include a more complex investment strategy that aims to generate returns with a low correlation to equity and bond indices, the use of derivatives such as futures and options, the use of leverage or borrowing, the use of short selling, and finally the charging of a performance based fee in addition to a management fee.
Using the above five criteria when evaluating the performance of hedge funds creates a wide range of funds to choose from, each of which might invest in completely different asset types such as equities, bonds, credit, commodities or currencies which would normally not be associated with each other, and therefore rarely compared.
Adding to the complexity for the casual observer is that there are over twenty different strategies that a fund manager might use. And within each strategy there are further sub strategies or styles to complicate the analysis further. For instance if we just take those funds investing in equities, the www.fundmonitors.com database divides the universe up into eight further sub strategies or styles.
To make matters worse it doesn't end there. Even taking equity long/short, (the most popular equity type strategy) there are funds which specialise in specific market sectors, such are large cap/small cap or industrials vs. resources. Some go further and focus on small cap and emerging resource or gold stocks.
Styles differ also - quantitative and discretionary, as does the geographic universe or mandate which might cover Australia, Asia, Asia ex Japan, Europe or the US - and so it goes on.
The point of detailing all this is that the term "hedge fund" casts a very wide net indeed, and frequently there is little to no comparison or correlation between one end of the spectrum and the other.
The same can be said of performance, and indeed it is worth noting that one of the objectives of hedge or alternative funds for institutional investors is to diversify their exposure to a specific asset class so that when one (such as equities) performs badly others (such as bonds or commodities) provide some protection against the volatility.
Read the entire article by Chris Gosselin here.
One big problem for the hedge fund sector (pdf format)
15 May 2013 - Meet the Manager - Morphic Asset Management
Continuing our highly successful "Meet the Manager" presentation series, Jack Lowenstein, Managing Director, Joint Chief Investment Officer, Morphic Asset Management will present an overview of the Morphic Global Opportunity Fund on Thursday 16th May 2013, which he describes as being, "Global with a long equity bias and a macro overlay".
Morphic's philosophy is summarised by the view that only funds with flexible hedging strategies will be able to deliver acceptable, steady, real, absolute returns for investors over the investment cycle. The latest copy of our Research Review of the Fund is here.
Jack will share his views on the outlook for the global economy and markets. He recently returned from Japan and will give us some insights into the changes in markets and sentiment since Prime Minister Abe's election.
Thursday 16th May 2013 at 12:30pm
Sydney city venue to be advised
RSVP by Monday 13th May 2013
If you are interested in attending this "Meet the Manager briefing", please reserve your seat and we will send you confirmation of your registration by return email.
Morphic Fund Review March 2013 (pdf format)
26 Apr 2013 - Meet the Manager
In 2012, AFM hosted a series of lunch presentations entitled "Understanding Hedge Funds" which provided investors with a more balanced view on the sector than is sometimes portrayed in the media. Following feedback from a number of our guests we also organised briefings and presentations for a small group of investors to "meet the manager" and hear from individual fund managers in person.
Our "Meet the Manager" briefings will be held every month, over breakfast or lunch and will showcase AFM's Fund Manager clients, their available Funds and views of the current market and opportunities ahead.
If you are interested in attending any of AFM's "Meet the Manager" briefings, please reply by email.
Fund Managers wishing to participate in the presentation series are invited to contact Chris Gosselin, CEO, to discuss the opportunity.
9 Apr 2013 - 6 Ways Hedge Funds need to Adapt now
SEI's sixth annual survey of institutional hedge fund investors was conducted in November 2012 by the SEI Knowledge Partnership. Online questionnaires were completed by senior investment professionals at 107 institutions.
Endowments and foundations account for 19% of all survey respondents. Pension plans account for another 18% of respondents, with public plans dominating. Family offices account for 9% of responses. Funds of hedge funds (FoHF) accounted for one-third of all responses. FoHF data was tabulated separately from other institutional investor responses. Remaining responses came from banks, insurance companies, and non-profit organisations.
To read the full report, please click here.
6 Ways Hedge Funds need to Adapt now (pdf format)
7 Apr 2013 - Meet the Manager - InSync - now closed
Last year we hosted a series of lunch presentations entitled "Understanding Hedge Funds" which provided investors with a more balanced view on the sector than is sometimes portrayed in the media. Following feedback from a number of our guests we also organised briefings and presentations for a small group of investors to "meet the manager" and hear from individual fund managers in person.
Our next "Meet the Manager" briefing is with Monik Kotecha from Insync Funds Management on Wednesday 10 April 2013.
Monik's fund, the Insync Global Titans Fund, invests in a concentrated portfolio of large cap global stocks with a focus on those companies that can consistently grow dividends and earn high returns on invested capital. The latest copy of our Research Review of the Fund is here.
Monik will share his views of the market and the opportunities and risks which lie ahead. Having just returned from the UK and meeting many leading multinational companies he will also be able to provide an update on the global trends and observations they provided.
If you are interested in attending this Meet the Manager briefing, please reply by email and we will send you confirmation of your registration and inform you of the Sydney city venue.
Wednesday 10 April 2013 at midday
Sydney city venue to be advised
RSVP by Thursday 4 April 2013
AFM Fund Review (pdf format)
23 Jan 2013 - New hedge fund bucks trend with fees cut
One of the UK's fastest-growing hedge funds is slashing its fees, in a move that it hopes will spark a rethink of the industry's notoriously high charges.
The new Core Macro fund being set up by Cambridge-based Cantab Capital will employ similar trading strategies as funds from Man Group, Winton Capital and BlueCrest, three of the world's biggest hedge funds that manage $100bn between them, but at half the cost to investors.
While the industry standard is an eye-watering "two and 20", or 2 per cent of all capital invested annually and 20 per cent of all profits, Cantab's new fund levies only 0.5 per cent and 10 per cent.
Fees are set to become one of the hedge fund industry's biggest areas of change as large institutional investors try to use their clout to force discounts in a tough trading environment that has dented hedge funds' once-high returns.
"We are seeing a substantial increase in institutional allocators investing directly in hedge funds and they are typically the most fee-sensitive," said Daniel Caplan, European head of global prime finance at Deutsche Bank. "A key focus is not paying for returns that are purely correlated to market moves - investors can access that more cost-effectively elsewhere."
Many hedge funds continue staunchly to resist lowering charges, argue that lower fees equate to lower quality. Man Group, Winton Capital and BlueCrest declined to comment.
Cantab's new fund, and those from the other three, belong to a class of quantitative funds called trend followers, which use computer algorithms to spot and trade on trends across different markets, and collectively manage around $330bn in assets, according to BarclayHedge.
Ewan Kirk, Cantab's founder, believes investors are being overcharged by many big quant funds. The trading strategies they provide can be delivered for lower costs, he said: "This is potentially a game changer," the ex-astrophysicist told the Financial Times. "It's like when Vanguard came out with the first index trackers."
Established large trend following funds point out that they invest considerably in constantly refining and tweaking their models to stay ahead of new competitors and ensure investors get what they pay for.
Click here to read the entire article from Sam Jones in London, FinancialTimes.com
Click here to register or change your subscription details and find out what's new in 2013.
21 Dec 2012 - NEW WEBSITE RELEASED!
Australian Fund Monitors (AFM) www.fundmonitors.com provides the most comprehensive source of data and information on Absolute Return, Hedge Funds and Alternative Investments in Australia.
Performance and Industry News will be updated weekly. We are also releasing a series of videos on Understanding Hedge Funds, with Fund Manager interviews to be added to the video showcase in 2013. Please watch the first video, which explains what a Hedge Fund actually is, by clicking here.
You can navigate through the site by either the Menu Bar in the header, or by using the icons at the top of each page.
Register for Weekly Newsletter
Registration to the AFM website is FREE and will provide access to general industry information and performance data and also to preview the comprehensive range of information provided by Australian Fund Monitors on Absolute Return, Hedge Funds and Alternative Investments in Australia.
AFM provides basic factual and performance information on each Fund, with the description of each Manager and their Funds' Strategy provided by the fund manager, or documentation provided by the fund manager. At the time of listing each Manager is requested to confirm their information and that they hold an appropriate and current Australian Financial Services Licence for any fund listed.
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More detailed information on individual Managers and Funds, with historical results, key performance indicators, and the ability to save funds to a Watch List is restricted to Subscribers only. Please register prior to subscribing.
Enjoy your Summer holidays!
We would like to take this opportunity to wish all our visitors and clients a very merry Christmas and safe and happy holiday season. We look forward to a prosperous 2013!
SINGAPORE: Hedge fund managers said industry consolidation and increased regulatory oversight wit
4 Dec 2012 - Asian hedge fund industry faces challenges ahead
SINGAPORE: Hedge fund managers said industry consolidation and increased regulatory oversight with accompanying costs are the top two challenges facing the industry in the next one to two years.
This is according to a pool of 100 hedge fund managers interviewed by accounting firm, Ernst and Young.
Read the entire article here. www.channelnewsasia.com
