Publications
Partners
SOUTH AFRICAN HEDGE funds are proving their mettle, providing investors with cash-beating returns at significantly lower volatility than the equities market. Over the longer term - in this case, three years - they've also beaten the JSE/FTSE All-Share index.
That's shown in the latest Blue Ink All South African Hedge Fund Composite (BIC), which tracks the performance of around 100 local hedge funds. According to BIC the average South African hedge fund posted a return of 15,7% for the 12 months to year-end 2009 (see table). The All-Share index, driven largely by resources shares, did much better, with a return of 32,1%. But according to Kevin Ewer, a portfolio manager at Blue Ink, this was with a degree of volatility (measured by annualised standard deviation) roughly 10 times greater than hedge funds.
Ewer says it's over a three-year period the outperformance of hedge funds is clearly demonstrated, both on a nominal and a risk-adjusted basis. He says volatility is likely to be high this year and hedge funds are well positioned to produce the best risk-adjusted performance over the year.
Says Ewer: "Hedge funds have the ability to offer good upside participation with low downside participation, helping to shield investors from the worst of market downturns. We believe conditions are favourable for hedge funds to outperform other asset classes in 2010. Cash rates are likely to remain low and the massive issuance in the bond market is a major headwind for that asset class. From a long only side in equities the easy money has been made."
The equity market is likely to see increased volatility, and fund managers will have to differentiate between quality companies and companies that have simply rallied despite underlying problems, he says. "This provides opportunities for hedge fund managers who are good stock pickers, with both the long and short portions of the fund being potential profit centres."
Retail investors can affordably access SA hedge funds through funds-of-hedge-funds, a number of which are available here.
