Managed Futures Buck The Trend
2008 is finally drawing to a close and what a year it has been. Major asset classes have fallen in tandem in this financial tsunami and many experts have warned of worse-to-comes next year – not exactly words that makes us welcome 2009. With the exception of Sovereign Bonds, most other asset classes have not offered much in terms of diversification. The theme for diversification this year has been more of protection against default and bankruptcies instead of performance.
The Hedge Funds industry, which has been touted as offering additional diversification through a absolute return strategy, too has been somewhat of a disappointment. The general Hedge Funds industry has failed to achieve absolute return this year, although it has generally dropped less than the market. The following graph illustrates the performance of Hedge Funds, Managed Futures and MSCI World Index from End Dec 1999 to End Nov 2008. All index has been re-based to 100.
As we can see, in absolute terms, Hedge Funds has provided superior returns compared to MSCI World since year 2000. However, over the last year, Hedge Funds have not been spared in the worldwide sell-down, which was not seen during the recent-past crisis like the Dot.com bust, 9-11 Terror Attack, Iraqi War and Sars period. The Eurekahedge Hedge Fund Index has returned -12.28% (up to Nov) over the preceding 12 months compared to the -44% for MSCI World over the same period.
A class of Alternative Investment in the form of Managed Futures have stood out amidst this global rout. The Eurekahedge CTA/Managed Future Hedge Fund Index has return 18% (up to Nov) over the preceding 12 months, a respectable return even in bull markets, not to mention that it was achieved during the ‘unprecedented’ situation now.
Contrary to the strategies of Hedge Funds, which can be Equities Long/Short, Fixed Income Arbitrage, Macro Events etc, Managed Futures are usually computer driven funds that invests in the financial and/or commodities Futures market.
It would be interesting to know the kind of performance from Managed Futures Funds in 2009.
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Tags: Alternative Investments
