“The evidence on investment managers’ success with market timing is impressive
– and overwhelmingly negative”
- Charles D Ellis, Investment Policy 1985.
Performance
Hedge funds outperformed the major indices in May. The Greenwich Global Hedge Fund Index ("GGHFI") returned +2.01% in May, extending its gain of +1.59% in April. The S&P 500, MSCI World Equity, and FTSE 100 indices posted returns of +1.29%, +1.11% and -0.56%, respectively.
Year-to-date, the GGHFI has returned +0.49% while the S&P 500, MSCI World Equity and ASX 200 have year-to-date returns of -3.81%, -3.98% and -9.1%, respectively. Within the GGHFI, 83% of constituent funds ended the month with gains. Long-Short Equity Group strategies returned 2.4%. Within this strategy, the top performer was aggressive growth strategies for the second month in row, gaining 3.1% for the month. Emerging markets gained 2.3% after an April rise of 2.1%. The Market Neutral Group return, as befitting the low volatility strategy had a return of 1.4%.
|
Greenwich Alternative Investments Hedge Fund Index |
|||||||||
Total Return |
3 Yr Annual |
5 Yr Annual |
|||||||
Index |
May 08 | Apr 08 |
YTD |
3 Month |
1 Year |
CAR |
STD |
CAR |
STD |
| Global Hedge Fund | 2.0% |
1.6% |
0.5% |
1.5% |
4.7% |
10.8% |
5.1% |
10.1% |
4.6% |
| Global Long/Short | 2.4% |
2.6% |
0.8% |
2.4% |
2.7% |
11.5% |
6.6% |
11.2% |
6.2% |
| Global Market Neutral | 1.4% |
1.0% |
0.4% |
1.0% |
2.5% |
8.5% |
3.0% |
7.6% |
2.8% |
| Emerging Markets | 2.3% |
2.1% |
3.1% |
0.2% |
8.6% |
18.3% |
9.6% |
19.7% |
9.0% |
Benchmark |
May 08 | Apr 08 |
YTD |
3 Month |
1 Year |
CAR |
STD |
CAR |
STD |
| Lehman Bond Index | -0.7% |
-0.2% |
1.2% |
-0.6% |
6.9% |
4.3% |
2.8% |
3.8% |
3.6% |
| S&P 500 Index | 1.3% |
4.9% |
-3.8% |
5.8% |
-6.7% |
7.6% |
8.8% |
9.8% |
8.5% |
| MSCI World Index | 1.1% |
5.0% |
-4.0% |
4.8% |
-5.6% |
10.2% |
9.4% |
12.2% |
9.2% |
| ASX 200 | 1.53% |
4.53% |
-9.1% |
2.6% |
-6.6% |
16.1% |
11.8% |
18.3% |
10.1% |
| CAR= Cumulative Average Return, STD = Standard Deviation | Source: Greenwichai.com |
Markets
May saw positive performances in most equity markets albeit at a slower pace than the April recovery. Volatilities continued to fall back in most markets as witnessed by the fall in the S&P 500 volatility index, which ended the month at 17% (see VIX chart below). The U.S. Dollar mounted a strong rally toward the end of May and 50% expect the Dollar to continue moving higher in June.
Sentiment
Of Macro managers surveyed, 71% of the Managers report a bearish position on the S&P 500 for June vs. 14% neutral and 14% bullish. The U.S. Dollar mounted a strong rally toward the end of May and 50% expect the Dollar to continue moving higher in June vs. 29% unchanged and 21% bearish. Finally, the U.S. Treasury 10-year traded lower toward the end of last month and 43% of the Managers expect the 10-year to continue moving lower vs. 29% unchanged and 29% higher.
Energy and livestock bouyant; industrial metals and agriculture drag down commodities indexes
For the second consecutive month, the S&P GSCI was led higher by double-digit returns in Energy. According to Standard & Poor’s, the S&P GSCI increased 9.10% (total return) in May on the heels of a 13.02% gain in the S&P GSCI Energy Index. Energy was sparked by the 15.90% return of the S&P GSCI Heating Oil Index in May. Natural gas was the Energy laggard during the month with a 6.93% return.
The S&P GSCI Livestock Index followed Energy’s strong monthly gain with a 4.58% return in May, although still down 4.56% on the year. Despite a continued recovery in the US dollar, higher equity prices and increasing interest rates, the S&P GSCI Precious Metals Index managed to rally 2.59% on the month as gold futures recovered from the $850/oz level. Industrial metals, however, suffered from excess inventories in May, prompting the S&P GSCI Industrial Metals Index to decline of 7.67% – its worst monthly loss since falling 8.53% in November of 2007.
The S&P GSCI Agriculture Index declined 3.16% in May led lower by the S&P GSCI Wheat Index which fell for the third consecutive month. In the softs, an oversupply of the main source of what some are now calling “good-ethanol” continued to weigh on the market. As a result, the S&P GSCI Sugar Index lost 15.03% in May for its third consecutive monthly decline. The year-to-date return for the index now stands at -13.83%
S&P GSCI Total Returns Through May 2008 |
|||||
MTD |
QTD |
YTD |
3 Month |
12 Months |
|
| S&P GSCI Index | Change |
Change |
Change |
Change |
Change |
| S&P GSCI Total Return | 9.10% |
17.79% |
29.48% |
29.52% |
68.26% |
| S&P GSCI Energy Index Total Return | 13.02% |
25.82% |
39.56% |
43.00% |
94.43% |
| S&P GSCI Non-Energy Total Return | -3.02% |
-4.28% |
2.85% |
-3.58% |
11.84% |
| S&P GSCI Industrial Metals Index Total Return | -7.67% |
-8.54% |
10.37% |
0.33% |
-8.86% |
| S&P GSCI Precious Metals Index Total Return | 2.59% |
-3.40% |
6.25% |
-3.97% |
31.93% |
| S&P GSCI Agriculture Index Total Return | -3.16% |
-5.77% |
-0.12% |
-6.41% |
37.82% |
| S&P GSCI Livestock Index Total Return | 4.58% |
11.70% |
-4.56% |
-2.01% |
-15.33% |
| S&P GSCI Softs Total Return Index | -8.33% |
-7.81% |
-6.99% |
-12.89% |
4.92% |
Alpha, Beta and Strategic Asset Allocation – the Paradigm Shift in Portfolio Construction
Surely with Oil (Black Gold) recently hitting USD$135.00 per barrel, asset allocation and investment decision-making has never been so easy: Just go ‘long’ Black Gold and Yellow Cake (Uranium), food producers, water companies and go ‘short’ USA car manufacturers and luxury goods companies, and the right mix of alpha and beta returns should appear as if by magic. VanMac Director Scott MacDonald examines how over the last 60 years, the interpretation of a prudent portfolio has changed – and offers some suggestions on strategic asset allocation to achieve total returns in today’s markets...more>>
Trends
Endowments, Pensions Drive Hedge Fund growth
While there has been a lot of talk among lawmakers and regulators about the so-called retailisation of hedge funds, according to Investment News the one trend that has appeared to dominate the nearly $2 trillion hedge fund industry over the past decade has been the increased influence of institutional-class investors...more>>
Super funds to raise hedge fund weighting
Australian super funds are predicted to increase their investment allocation to hedge funds by $1 billion over the next two to five years with some switching from the popular fund-of-fund strategy to single strategy and multi-strategy hedge funds. According to the research, major super funds expect to increase their average allocations to hedge funds from 2.5 to 3.5 per cent over the next 2-5 years, indicating that super funds are still pouring money into hedge funds despite “concerted criticism” of the sector. This contrasts with the 2006 findings that predicted a $1.5 billion increase, from a corresponding 2.9 per cent average allocation to 4.1 per cent...more>>
Australia gets Chinese QDII status
Australian financial services operators will now get direct access to Chinese domestic investment funds after Australia was approved as an official investment destination under the Qualified Domestic Institutional Investor (QDII) scheme. The QDII scheme allows Chinese banks, insurance companies and fund management companies to invest in overseas markets. According to IFSA, the Chinese funds management industry grew by approximately $352.2 billion last year and is on-track to reach $761.4 billion at the end of 2008.
“This is a landmark announcement for the Australian financial services industry. Australian fund managers are now ideally placed to partner with Chinese institutional investors in assisting them to further diversify their portfolios,” said Richard Gilbert, IFSA chief executive. “Australia now [has] the necessary memorandums in place with both the China Securities and Regulatory Commission (CSRC) [and] the China Banking and Regulatory Commission (CBRC) – two of the most important financial regulatory agencies in China.”
UN Drags Feet On Alternatives
The United Nations Joint Staff Pension Fund, which manages $40.6 billion worth of assets, has yet to allocate funds to alternative investments - one year after advisers recommended investing in private equity and hedge funds. The lack of response is surprising, given the accessibility and availability of these investment classes. However, there are signs that the UN fund may take a step towards alternative investment, with media reports earlier this year indicating that the pension fund had requested help from external investment consultants on alternatives...more>>
General
Small, new hedge funds draw interest from institutional investors
Nearly half of institutional investors, 46%, are willing to invest in young and/or small hedge funds and 15% would consider such an investment, according to a recent survey by database manager Preqin Hedge. If the new hedge fund had come from a well-established firm, the percentage of those who would invest rose to 55% and those who would consider doing so increased to 12%. Only 8% of survey respondents said they would seed a new hedge fund, but 12% said they would consider it...more>>
For the diary
ASFA 2008, the premier superannuation industry conference event will be held offshore this year, in Auckland , New Zealand from 12-14 November. Registrations for this year's event, themed Reaching New Heights, commenced on 1 April...more>>