Offshore hedge funds rebound
REBOUNDING emerging markets have helped offshore hedge funds bounce back from a poor year last year to outperform the Morgan Stanley Capital International (MSCI) world equity index.
The funds returned 10.9 per cent in the year to the end of last month against the benchmark's 3.2 per cent, according to new data by investment consultants Van Hedge Fund Advisers, which produces its own indices covering 2,800 hedge funds.
Van, which breaks its offshore index down by investment strategy, reported that funds investing in emerging markets produced the second best returns for the year - 20 per cent. Funds investing in aggressive growth stocks were the top performers, with 21 per cent.
The rebound in offshore hedge funds came after a dismal year last year, with returns across all investment strategies of minus 1.5 per cent while the MSCI global index put on 22.8 per cent.
Emerging market hedge funds were the worst performers last year, losing 26.1 per cent, according to Nashville, Tennessee-based Van.
Macro funds with a global mandate to choose among investments classes and go long or short, such as those run by such high-profile investors as Julian Robertson and George Soros, have performed quite well, with a 8.1 per cent return for the year to the end of May.
But overall, the investment strategy has not provided the stellar returns expected from their high-profile and high-risk investment activities. For the five years to last year they produced a net compound annual return of only 6.7 per cent, Van reported.
For the same period, offshore hedge funds with the more low-key market neutral strategy of securities hedging produced an annual return of 13.8 per cent, and the approach has brought in 6.3 per cent for the year to date.
Aggressive-growth hedge funds, investing in stocks expected to show rapidly expanding earnings and stock prices, were the top performers with an annual return of 16.8 per cent.
Emerging markets hedge funds produced negative returns in four of the five years under review, for a net compound annual return of minus 4.5 per cent. But the worst performing strategy over the five years was short-selling, with a negative annual return of 6.1 per cent.
United States hedge funds have outperformed the S&P 500 index of US stocks in both April and May and for the year to date, Van reported.
The figures are a boost for advocates of the active management of money, against index trackers who have had the better of the argument for the past five years in a roaring US bull market.
Van's US hedge fund index gained 10.4 per cent for the year to the end of May while the S&P put on 6.5 per cent.
In April, hedge funds beat the index 4.7 per cent to 3.9 per cent and in May they returned 1.4 per cent while the S&P lost 2.4 per cent. Indeed, 90 per cent of hedge funds beat the S&P last month, Van reported.
But for the five years to last year, hedge funds have gained 15.2 per cent per annum, while the S&P index has powered ahead with 24.1 per cent.
Active managers admit it is tough to outperform the benchmark in a bull market but claim shrewd adjustment of portfolios means they are much more likely to beat a lumbering index weighed down with over-bought large-cap stocks when times get rougher.
Jon Ogden
