13 Sep 2010
Hedge fund managers dialed down risk in the face of bearish economic fundamentals in August, according to Man, one of the world's largest listed hedge fund providers. That lead to a flat headline performance for the industry but the underlying story was one of successful risk management and significant outperformance relative to world equities.
Managers’ move to reduce risk in August was typical of a volatile 2010. In July managers embraced risk as optimism grew in world markets following more positive economic data. May and June were marked by market turmoil and investor indecision. As a result, managers reduced risk and hedge funds generally struggled.
Managed futures firms were the stars of the hedge fund universe last month, as they benefitted from the strong rally in US Treasuries and other government bonds. Global macro and relative value built on last month’s success. Global macro traders profited from currency, fixed income and commodity trading, while relative value traders benefitted from credit and derivative arbitrage strategies. In aggregate all investment styles were positive except for equity hedged managers, but equity hedged managers did succeed in limiting downside compared to equity market performance for the month.
Managers’ move to reduce risk in August was typical of a volatile 2010. In July managers embraced risk as optimism grew in world markets following more positive economic data. May and June were marked by market turmoil and investor indecision. As a result, managers reduced risk and hedge funds generally struggled.
Anthony Lawler, head of portfolio management at Man’s multi manager business, said: “Risk-on, risk-off is creating a roller coaster ride for hedge funds. August’s slightly positive overall returns are slightly misleading, however. Hedge fund returns are actually widely dispersed. Some funds of funds were up over one per cent for August, while equity biased funds were negative. That’s why we believe that an experienced, well resourced hedge fund allocator can add real value through active selection and management.”
Managed futures firms were the stars of the hedge fund universe last month, as they benefitted from the strong rally in US Treasuries and other government bonds. Global macro and relative value built on last month’s success. Global macro traders profited from currency, fixed income and commodity trading, while relative value traders benefitted from credit and derivative arbitrage strategies. In aggregate all investment styles were positive except for equity hedged managers, but equity hedged managers did succeed in limiting downside compared to equity market performance for the month.
Lawler added: “At times like these, when equity related styles are struggling, it is especially helpful to have sizeable allocations to managed futures and global macro. The managed futures style has not always been well regarded by institutions but over time managed futures managers add significant value to any equity heavy portfolio because they tend to perform well even when equities are negative.”
