Hedge funds using technicals tipped for 2009-2010

Hedge funds using technical indicators are likely to fare better in the next two years than those purely basing their strategy on economic fundamentals, a survey of around 200 investors found recently.

The survey of asset managers, institutions, and high net worth investors at the Global Alternative Investment Management (GAIM) Fund of Funds conference in Geneva showed 36 percent saw such trading-based strategies set to outperform in 2009-2010. These strategies generally use technical indicators or a combination of technical and fundamental indicators to make short or medium-term bets on market movements.

Long/short equity strategies were chosen by 16.7 percent. Long/short managers vary their overall market exposure via long positions in those equities that they expect to outperform the broader market and short positions in those expected to underperform.

A further 13.9 percent of those surveyed said arbitrage strategies, which seek to profit from the inefficient pricing of securities, would be the best performers for the two-year period.

A third of respondents expressed a preference for funds that combine trading, arbitrage and long/short equities strategies.

Sixty-nine percent of respondents said funds of hedge funds would continue to attract investors despite their negative performance through the end of September. The remaining 31 percent said funds of hedge funds would survive the current crisis but that their structure and fees would evolve.

Asked about alpha, or outperformance relative to an expected risk-adjusted rate of return, 55.3 percent said this would come from a combination of manager skill and portfolio construction.

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