'In the business world, the rear-view mirror is always clearer than the windshield.'
- Warren Buffet
Performance
Hedge funds outperformed the major equity indices year to date as well as over 1, 3 and 5 year periods at considerably less risk as measured by standard deviation (see table below). The Greenwich Global Hedge Fund Index ("GGHFI") returned -4.9% in September. The S&P 500, MSCI World Equity, and S&P/ASX 200 indices posted returns of - 8.9%, -12.1% and
Despite the marked weakness in hedge funds in September, not all the major hedge fund strategy groups moved lower for the month. Directional Trading funds advanced by +0.51% on average, led by Futures managers who capitalized on declining commodity values. Macro managers did not fare as well, losing -3.62% on the month. Specialty Strategy managers were the weakest performing strategy group for the month of September, with funds losing -7.33% on average. Emerging Markets funds were once again the main reason behind the losses as these managers shed nearly 10% during the month.
|
Greenwich Alternative Investments Hedge Fund Index |
|||||||||
Total Return |
3 Yr Annual |
5 Yr Annual |
|||||||
Index |
Sep 08 |
Aug 08 |
YTD |
3 Month |
1 Year |
CAR |
STD |
CAR |
STD |
| Global Hedge Fund | -4.9% |
-1.3% |
-8.9% |
-8.2% |
-7.2% |
5.1% |
6.3% |
7.0% |
5.5% |
| Global Long/Short | -6.7% |
-1.1% |
-12.8% |
-10.3% |
-11.7% |
3.9% |
8.1% |
7.1% |
7.3% |
| Global Market Neutral | -7.2% |
-0.8% |
-6.3% |
-10.2% |
-4.6% |
3.3% |
6.1% |
4.1% |
5.0% |
| Emerging Markets | -9.9% |
-4.5% |
-23.3% |
-16.8% |
-20.6% |
6.1% |
12.4% |
11.3% |
10.8% |
Benchmark |
Sep 08 |
Aug 08 |
YTD |
3 Month |
1 Year |
CAR |
STD |
CAR |
STD |
| Lehman Bond Index | -1.3% |
1.0% |
0.6% |
-0.5% |
3.7% |
4.2% |
2.8% |
3.8% |
3.1% |
| S&P 500 Index | -8.9% |
1.5% |
-19.3% |
-8.4% |
-22.0% |
0.2% |
11.4% |
5.2% |
10.4% |
| MSCI World Index | -12.1% |
-1.6% |
-25.6% |
-15.7% |
-27.6% |
-1.2% |
12.9% |
5.4% |
11.7% |
| ASX 200 | -9.85% |
4.09% |
-15.5% |
-10.4% |
-26.8% |
4.0% |
14.4% |
12.4% |
12.2% |
| CAR= Cumulative Average Return, STD = Standard Deviation | Source: Greenwichai.com |
Markets
September saw one of the worst markets in living memory, as the credit crisis peaked again. Volatilities as measured by the S&P 500 VIX index hit an all time high of 46% at end of September (see VIX chart below), reflecting the uncertainties surrounding the credit crisis. The Australian dollar fell 7.44% against the US dollar, 5.00% against the Euro, 11.4% against the yen, 6.00% against the pound, and was down 6.4% against a trade weighted index, continuing the falls seen in August. These falls were mostly the result of the flight to the US dollar and Yen as safe havens and to further unwinding of the carry trade as the Reserve Bank lowered interest rates. Perversely, Gold, which has historically been seen as a safe haven in times of crisis, only rose slightly (+ 7% USD) during September after rising since 2002 to a peak of almost $1,000 an ounce in March 2008.
Sentiment (based on macro manager survey)
The surveyed macro managers' bearish stance on U.S. equities going into September proved to be quite prescient, as the S&P 500 suffered its worst one-day percentage loss since 1987. Looking forward to October, 55% of the managers surveyed hold a bearish position on stocks vs. 27% bullish and 18% neutral. With respect to the U.S. Dollar, 55% of the Managers expect the Dollar to continue moving higher vs. 18% lower and 27% unchanged. Finally, U.S. Treasury 10-year prices traded sharply lower last month and 55% of the managers expect the 10-year to continue moving lower in October vs. 36% higher and 9% unchanged.
News
VanMac Group launches innovative multi-asset alternative fund
The recent market turmoil has provided great opportunities for innovative investment vehicles to come to the fore, according to VanMac Group Managing Director Scott MacDonald.
"Long/short hedge funds are not the only options available to investors," he says. "In the Greenwich Investable Hedge Fund index, which has continually outperformed the major indicies, equity-related strategy styles account for less than 45 percent of funds tracked among some 18 investment styles."
"Hedge funds are not homogenous and not all hedge fund investments relate to equities or long/short strategies."
With that in mind, Mr MacDonald believes it is a good time for institutional investors to look into multi-hedge fund platforms.
"Essentially we are talking about taking a traditional endowment fund model and offering a locally-compliant version that ticks all of the right asset allocation boxes," he says.
"If recent events have shown us anything, it's that while there have been huge amounts of capital invested in traditional investment management vehicles, plainly not everyone has the skill to make them work over the long term, and buffer themselves against market volatility."
"We believe it is the right time for funds managers to change their approach to investing in alternatives, and we at VanMac Group can offer our local wisdom backed up by the strength of Greenwich."
Contact VanMac Group for more information.
Hedge funds - Bad boys of our industry or champions of diversification?
VanMac Group returns to this year's ASFA conference with a special breakfast workshop on Wednesday, 12 November, discussing the broader concepts of total return portfolios and the contribution that alternatives make. The presentation will be repeated in Sydney on 19 November at the Union and US Club, in Bent Street...more>>
ASFA Conference adds new session discussing world market crisis
ASFA 2008 conference organisers have announced that they have added a not-to-be-missed plenary session on the crisis in world markets. Covering the challenges and opportunities presented by the changing financial climate, the session will feature a team of prominent thought leaders offering their views on why this history-making event has emerged and how it will impact us both in Australia and globally. Speakers including John Sevior, Head of Australian Equities, Perpetual, Ken Marshman, Head of Investment Outcomes, JANA Investment Advisers and Dr Barry Hughes, Consultant Economist, Credit Suisse Asset Management will give insights from economic and investment perspectives. This event will undoubtedly build the platform for follow-on discussions and exchanges of views over the three days of the conference.
Click here to register for the ASFA conference, which will be held in Auckland, New Zealand from 12-14 November.
Trends
Widespread doubts that 'ban' has reduced volatility
In a move designed to restore sharemarket confidence and stop selling attacks on certain stocks, a month ago the Australian Federal Government bowed to pressure from leading company executives and banned short selling. Despite the drastic measure, market insiders believe it has had little effect on volatility, and exercised no beneficial effect on the market whatsoever...more>>
UK regulator sees no need for more regulation
The UK's Financial Services Authority (FSA) said recently it did not see the need for more regulation of hedge funds, and that most funds had so far weathered recent financial turmoil fairly well. That said, the FSA Chief Exec believes that more effective regulation is necessary...more>>
Switzerland rolls out the welcome mat for hedge funds
Switzerland's fledgling hedge fund industry is set for growth as the credit crisis forces the industry to focus on lower-cost centers and the country aims to lure managers from London. Lower living costs, as well as better personal tax rates than London in some cantons, improving tax terms for fund firms and a high quality of life are carrots Switzerland is dangling in front of continental European managers based in London...more>>
Research
Sir John Templeton's rules for investment success
In honour of Sir John Templeton, founder of the Templeton Franklin funds, who passed away in July at the age of 95, we are continuing to quote from his 16 timeless rules for investment success...more>>