Hedge Funds show their mettle
Every cloud has a silver lining, or so they say, so the volatility in Australia's equity market in the last couple of weeks, and which saw the ASX 200 drop 1.7% in April following a negative (albeit small) fall of 0.06% in March has probably played into the hands of hedge fund managers. Local equity-based hedge funds have gained around 1.2% over the past two months, and have now outperformed the index by 2.5% percent over a rolling 12 month period.
Globally it is no different. Industry newsletter Hedgeweek reported this week that hedge fund managers may be showing their mettle as global financial and geopolitical volatility continues, with the hedge fund industry beginning to beat popular indexes, according to eVestment's just-released April 2015 Hedge Fund Performance Report.
There has been a very long and very active debate over the value of hedge funds, but the popular opinion of hedge funds as being highly risky is simply not borne out by the facts. In a strongly rising market the protection taken by hedge fund managers on the short side frequently sees them underperforming, but when volatility increases and markets fall, their short positions come into their own.
This is not always the case, and there are someexceptions to the rule with a handful of fund managers behaving or performing according to the myth. Thankfully there are others, and many more of them, who outperformed the market in both positive and negative markets. By definition this is difficult to do as they have to actively short stocks or the market to drive performance, rather than just to reduce risk. Part of the skill when selecting the best manager to suit the end investor's objective therefore is to analyse both their up and down capture ratios.
Talking of risk, it seems that twenty years after bringing down major British bank Barings (which listed amongst its historical credits funding the Napoleonic wars), the SMH reports that rogue trader Nick Leeson is sounding alarm bells about China. Unless the country reforms its stock markets, he warns, it's only a matter of time until his earlier disaster repeats itself on a larger scale. So it is not only rogue traders that create risk, but underlying government controls or lack thereof. The level of speculative trading in China driven by retail investors (or should that be punters?) funded by margin trading is, unless they are very, very careful, going to lead to inevitable volatility, and a repeat of the damage witnessed in 2008.
Finally Hedge Clippings can't resist mentioning something about this week's budget. It was certainly better than last year's, but we can't help feeling that it's really all about job protection - those of Treasurer Joe Hockey, and the Prime Minister, Tony Abbott. The real issue we see with the budget, was its lack of commitment to tackle major issues for the future. For example, consider the estimate that in 10 year's time the tax concessions on superannuation will cost the nation double that of the age pension - which the superannuation system was orginally designed to reduce.
Specific results received this week include the following LATEST PERFORMANCE UPDATES:
Optimal Australia Absolute Trust Fund reported a net positive return in April of 1.96%, compared to the ASX200 Accumulation Index of -1.70%
The Bennelong Kardinia Absolute Return Fund fell 0.59% in April to bring the Fund's annual performance since inception to 13.08% compared to the ASX200 Accumulation benchmark's 5.61%.
Monash Absolute Investment Fund had a flat April (0.0%), while the Australian equity market had its second consecutive negative month (-1.70%).
FUND REVIEWS released this week: Supervised High Yield Fund; and Alpha Beta Asian Fund which recorded its best ever return since inception.
25-27 May 2015 - Digital Marketing for Banking and Financial Services Summit
15 September 2015 - AIMA Australia Hedge Fund Forum 2015
This week for something completely different an email joke Hedge Clippings received from a reader:
This is something to think about when negative people are doing their best to rain on your parade.
A woman was at her hairdresser's getting her hair styled for a trip to Rome with her husband.
She mentioned the trip to the hairdresser, who responded: "Rome? Why would anyone want to go there? It's crowded and dirty. You're crazy to go to Rome. So, how are you getting there?"
"We're taking Continental," was the reply. "We got a great rate!"
"Continental?" exclaimed the hairdresser. "That's a terrible airline. Their planes are old, their flight attendants are ugly, and they're always late. So, where are you staying in Rome?"
"We'll be at this exclusive little place over on Rome's Tiber River called Teste."
"Don't go any further. I know that place. Everybody thinks it's going to be something special and exclusive, but it's really a dump."
"We're going to go to see the Vatican and maybe get to see the Pope."
"That's rich," laughed the hairdresser. "You and a million other people trying to see him. He'll look the size of an ant. Boy, good luck on this lousy trip of yours. You're going to need it."
A month later, the woman again came in for a hairdo. The hairdresser asked her about her trip to Rome.
"It was wonderful," explained the woman, "not only were we on time in one of Continental's brand new planes, but it was overbooked, and they bumped us up to first class. The food and wine were wonderful, and I had a handsome 28-year-old steward who waited on me hand and foot. And the hotel was great! They'd just finished a $5 million remodeling job, and now it's a jewel, the finest hotel in the city. They, too, were overbooked, so they apologized and gave us their owner's suite at no extra charge!"
"Well," muttered the hairdresser, "that's all well and good, but I know you didn't get to see the Pope."
"Actually, we were quite lucky, because as we toured the Vatican, a Swiss Guard tapped me on the shoulder and explained that the Pope likes to meet some of the visitors, and if I'd be so kind as to step into his private room and wait, the Pope would personally greet me. Sure enough, five minutes later, the Pope walked through the door and shook my hand! I knelt down and he spoke a few words to me."
"Oh, really! What'd he say?"
He said: "Who @#$%^& up your hair?"
And on that note, enjoy the week-end.
Kind regards,
Chris
CEO
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