Generating returns in volatile times


Originally published at:
Stock market ups and downs can worry investors and can create a barrier to investing by causing an increased fear of poor performance. Given this natural state of mind, it is useful for investors to revisit strategies that can be used to provide extra protection in uncertain times. Fast Facts Altin is a Fund-of-hedge-funds meaning…


I wouldn’t invest in a hedge fund. They’re just to mysterious to me, who knows what you’re investing in and the costs are huge.

Plus Altin is not even listed on the AIC website which means they haven’t bothered joining.

I get suspicious of investment trusts that won’t join their own trade body.


I like to see that a trust is a member of the AIC too.

I don’t think I’m too attracted to pure hedge fund investments, I prefer investments or managers who use some hedge fund strategies in what they do. I just think the whole industry is too opaque and full of hidden fees.

Evidence of that is the number of get rich quick billionaires currently funding the campaign to get the UK out of Europe in the hope that they’ll face less regulation.

I am all for profit but I think too much goes to these guys the investor whilst all of the risk of financial loss falls to us too and not to them.


Macro strategies can also include using derivatives to take positions based upon expectations of interest rates and currency movements - two things that have not been helped by QE-inspired distortions to USD. A benefit of this is that returns can be generated that are unrelated to stocks and bonds - equity and bond prices which move in narrow ranges are unlikely to benefit either short or long strategies.


One of the particular problems of these hedge fund feeder ITs is that of similar ITs that invest in illiquid assets, such as property: namely, they are listed on a stock exchange and their prices reflect investor demand as much as performance of the NAV. For instance, the NAV of BH Macro performed quite well in late-2008 to early-2009, but the share price fell and moved from a premium to a 20% discount - so whilst the uncorrelated strategy of the underlying assets worked, the investment medium did not deliver that same success (not over that short term period). So there was, is and can be a level of correlation with other asset classes even if the hedgies’ own assets are uncorellated.

The usual answer-by-rote to the above is ‘discount control’: if the manager has to raise cash to buy back shares in order to keep the discount down, then they do need to hold assets which are sufficiently liquid and that can be sold as and when necessary. My favourite bugbear. Again… :smile: There is a point when the perceived benefits of being a closed-ended structure is lost with discount control.

The actual assets held can be opaque with some of these ITs, too. For anyone that is interested, more information might be found is in the reports for the underlying master fund to which the IT’s assets are allocated. Not always, but it is possible to see a bit more of what going on with some of these ITs.

The next question is how long some of these might continue to be around. Bluecrest have recently announced that they intend to close their funds to external investors, to run them purely for employees and related families, and to return cash to those other investors - and this includes the IT feeder funds.


I agree with your point about discount policies. Mostly I don’t like them because I try and hold my investments for a long time @arkwelder and they make trusts appear too much like Unit Trusts and OEIC funds - if I wanted to invest in one of them then I would.

I think that whilst these funds can be opaque, they can be valuable in a downturn and maybe holding a little bit in one of these Hedge Fund trusts or in Ruffer/Personal Assets is a sensible idea for most investors.


It would interesting to see how this compares to BH Macro or Rugger and Personal Assets. Has @matthew_read done that exercise?


Dexion Absolute is throwing in the towel:


I like Capital Gearing which now has a ZDM like Personal Assets. This is good since the recent drop in performance was mainly due to the 20% premium evaporating. See chart for performance since FE has data. These trusts should also perform when markets are strong too.


Maybe this will help too. Date moved since some have not been going that long. I agree with @sandradore about hedge funds, I also find Ruffer having such a big stake in Japan (20%) a mystery. Sorry about the colours!


It’s not the first. I read a piece in the FT the other day on a company that claims to be able to recreate many of the hedge fund complex strategies very cheaply and automatically using computers.

If it is true it surely indicates further troubles ahead for this industry.


I don’t know much about Capital Gearing @james_pigott but I’ve heard others discussing it.

Maybe @whichinvest could do a piece on it for us.


Which is interesting in itself because quite a few of those strategies are themselves driven by computers - MAN Group’s AHL funds being an example.