With 66% of funds results in for June, there's a pretty good idication of the best funds for the past 12 months.
Once again the averages mask the real picture which shows that the range and spread of returns within the hedge fund sector is far greater than in index or long only funds which either track or aim to outperform the index, rather than provide an "absolute" or positive return in rising and falling markets.
Obviously some succeed while others don't, depending on their individual strategy and the current market conditions. We have looked at this distribution spread frequently before simply because the picture pains a thousand words. But the difficulty for investors is selecting those funds which can provide consistently positive returns rather that shooting the lights out one year, and then falling back to earth the next.
And what is really apparent is the correlation between really high returns and high volatility or risk. Of the top 10 funds with the highest annualised returns since inception - ranging from +17% to +39%, their current drawdown (i.e negative performance) five, or 50% have results ranging from -17% to -49%.
Whereas if we look at the best 10 funds in the past 12 months, with returns ranging from +7.89% to +17.79%, all but one have positive returns over 2, 3, 4 and 5 years, and all have positive annualised returns between +4.15% through to +21.27%.
Five of these have volatility blow 10%, and the highest is 12.43% but that fund's annualised return is also the best at 21.27%.
This is not only telling but a very familiar story - focus on managers that focus on risk, rather than returns when times are tough.
Later this week we'll be releasing our tables of the best funds over the past 12 months and the indications are that while all offer documents put in a disclaimer that past performance should not be used as a guide to the future, the reality is that past RISK performance certainly can be.
Regards,
Chris Gosselin
