Second Investment in Managed Futures

I have long seen the advantages of managed futures funds. The best of managed futures funds companies seems to be Winton. I previously made an investment with Man-AHL. The fund hasn't made much money for us, but did much better in the financial crisis than most of my other investments. We have 0.80% of net worth invested in the fund. We also have some investment in commodities via GTAA. Another fund that hasn't done much of anything so far. Now I have made an initial investment in a Winton fund offering. The investment is 4.6% of net worth. This takes exposure to commodities out of net worth to 6.0% and out of gross assets 4.5%. The main downside to this fund is that in Australia it doesn't have any tax advantages compared to stocks, which have strong advantages. This means that this will likely remain a small diversifying investment until maybe one day I set up a self-managed super fund, which is a tax advantaged structure itself.

How does this fit into our overall investment strategy? Basically we have a 60/40 portfolio with 60% in stocks and 40% in other investments. Within the stocks 2/3 are planned to be Australian stocks and 1/3 foreign. Within those categories we also allocate to large and small cap Australian and to US and non-US stocks in proportion to their market capitalizations. In the 40% other we have allocations to: bonds, real estate, hedge funds, commodities, private equity, cash, and other. The whole portfolio is then levered to provide about a beta of 1 to the stock market and rebalanced on an ongoing basis. The leverage of a diversified portfolio is an idea from the risk parity approach. 60/40 is simply the traditional stock-bond ratio used for diversified portfolios, and we weight heavily to Australian stocks for tax reasons. Several of the supposedly non-stock investments are in fact Australian listed stocks that are listed investment companies pursuing alternative investment strategies. A lot of the leverage is obtained by investing in leveraged (geared) managed stock funds rather than using margin loans ourselves. We keep the actual margin loan quite small most of the time. This is because the interest rate we can get is much worse than what the funds can get. Interactive Brokers has much better interest rates, but they aren't giving loans to Australian investors at the moment. All this seems to me a reasonable strategy for a non-high net worth investor based in Australia.

Hedge Fund Performance in the Recent Market Correction

The Dow Jones Credit Suisse Core Hedge Fund Index is a hedge fund index that is updated daily. This allows real time tracking of hedge fund performance vs. other asset classes:



Hedge funds declined much less than stocks in the recent correction. Particularly noteworthy have been the gains in managed futures.

End of an Era

Soros to return all outside money to investors. I didn't realise that it was down to just $1 billion in outside money. The Alchemy of Finance was one of the books that got me interested in trading. In the end that didn't turn out to be a very productive thing for me to try to do, but it was fascinating.

HFRX Index Performance June 2011

The HFRX hedge fund index lost another 1.59% in June and is down for the year by 2.12%. By comparison, the MSCI World stock index was down by 1.54% in June but is up 4.99% for the year. All strategies but equity market neutral lost money in June. The latter is also the best performing strategy YTD.

Credit Suisse Broad Hedge Fund Index: May 2011

The broad Credit Suisse/Dow Jones Hedge Fund Index did not perform as badly as the more narrow indices in May:

Early Hedge Fund Report: May 2011

According to the Credit Suisse/Dow Jones Core Index, hedge funds performed almost as badly as stocks in May:



The MSCI World Index lost 2.06% by comparison. Managed futures almost exactly reversed the previous month's gain and everything else went down too. The story was very similar at HFRX:



The flash update of the HFRI monthly indices shows a little more green still in come fixed income strategies.

More Hedge Fund Returns for April 2011

Like HFRI vs. HFRX the broad Credit Suisse index shows stronger gains than the narrower core index this month, with the index rising 1.8% overall:



And though Managed Futures did extremely well in both the Core and Broad indices there are some substantial differences in the other strategies such as Global Macro. The core index may be then mainly an indicator of direction of change alone and not a good proxy to the performance of a broader basket of hedge funds? Looking at global macro HFRX showed a 0.89% increase in April, Credit Suisse Core a 0.44% gain, Credit Suisse Broad a 2.46% gain, and HFRI a 3.36% gain.

BTW, at mid-May the HFRX indices are showing declines across almost all hedge fund strategies and a 1.8% loss for the global hedge fund index.

Hedge Fund Report: April 2011

There is a trend to earlier and earlier reporting each month of the results of the various hedge fund indices. Credit Suisse, now has a "Core Hedge Fund Index" along the lines of the HFRX. It gained 1.44% in April:



Managed futures did particularly well, but they did particularly badly in March. HFRX reported qualitatively similar results:



However, they estimate that hedge funds only gained 0.47% in April. Preliminary HFRI results show generally stronger performance than both these indices, with an overall gain of 1.86%:

Dow Jones/Credit Suisse Hedge Fund Index for March

The Dow Jones/Credit Suisse Hedge Fund Index rose slightly in March in contrast to the
HFR indices which fell. There were some similar patterns of relative returns across strategies with managed futures doing poorly and equity market neutral doing well.

Hedge Fund Report: March 2011

The HFRX index fell 0.88% for March whereas the MSCI World Index rose by 0.72%. Equity market neutral, macro, event driven, and special situations saw gains. Equity market neutral saw the best gains, but equity hedge the second worst losses!



HFRX is a daily priced index in contrast to HFRI which only provides monthly results but covers a much wider selection of funds as a result. Dow Jones Indexes and Credit Suisse are launching of the Dow Jones Credit Suisse Core Hedge Fund Index, which will also be a daily priced index. The existing Dow Jones/Credit Suisse index is a monthly index. The index includes 40 component funds diversified across seven style-based sectors: event driven, long/short equity, global macro, emerging markets, managed futures, fixed-income arbitrage and convertible arbitrage. It is an asset-weighted hedge fund index, whereas the HFR indices are not I believe.

Early results for HFRI show a loss of 0.17% for the month:



By contrast to HFRX, HFRI shows losses for macro strategies and gains for equity hedge. Generally, I'd expect HFRI to be more representative of the broader reality for these individual strategies due to the larger number of funds included.

More Hedge Fund Returns for February 2011

Credit Suisse-Dow Jones provide some preliminary results:



These show stronger overall performance and more variation among strategies than the HFRX results. HFRI is somewhere between the two:

HFRX Index Performance February 2011

The HFRX hedge fund index gained 0.73% for February compared to 2.16% for the MSCI World stock index. All strategies saw gains and it is hard to see any pattern in the variations across strategies.

EAIT Terminated

Everest Financial is winding up. I should get a payout of $A800 next month as part of the run-down. Now I got a letter from One Managed Investments who took over the EAIT fund from Everest that they terminated the fund on 11 February and are now managing just to pay out the investors. We should get a return of capital of 88.2 cents per share (i.e. about $A7,500 for me) on 1 March and the rest over the next four years. The delay is because the underlying hedge funds have "lock-up" periods.

The question is whether I should look to reinvest my capital in other hedge fund opportunities. If all goes to plan I did actually make some money on the EAIT fund (about $A3,000). I lost a lot investing in Everest Financial, the management company. Logically, the latter shouldn't deter me from investing in hedge funds. But the drawn out saga of EAIT has certainly made me more wary.

HFRX Performance for January 2011

Overall hedge funds gained 0.56% in January according to the HFRX index. In comparison MSCI World Index gained 1.59%. Equity hedge and market neutral strategies and systematic diversified strategies had negative returns. The Man-AHL managed futures fund lost 3.74% in January so the latter is not surprising.

GTAA Lowers Fees

Cambria's GTAA ETF has raised $72 million so far and so is lowering the expense ratio to 0.99%.

In other news, hedge fund assets hit a new record:

"HEDGE FUNDS END 2010 WITH RECORD QUARTERLY ASSET INCREASE

CHICAGO, (January 19, 2011) – The hedge fund industry concluded 2010 with the largest quarterly increase in assets in its history, according to data released today by Hedge Fund Research (HFR). Total industry assets grew to $1.917 trillion, reflecting a quarterly increase of nearly $149 billion, topping the previous record increase of $140 billion in 2Q07.

The year-end figure approaches the historical asset peak of $1.93 trillion set in 2Q08 and represents an asset increase of 44 percent since 1Q09. Hedge funds as represented by the broad-based HFRI Fund Weighted Composite Index posted a gain of 10.5 percent, but full-year gains were concentrated into year end, with the HFRI gaining over 5.5 percent in 4Q10."

HFRI Hedge Fund Index Performance December 2010

With the exception of short bias, all styles gained in December and for 2010 as a whole. Both the month and the year saw strong stock market performance globally in USD terms. The top performer for the year was funds that specialised in energy and basic materials. That's not too surprising.

Hedge Fund ETF

UBS and HFR have launched an ETF that tracks the HFRX Global Hedge Fund Index. Prices are available on Yahoo. These seem to indicate that it costs E50k per share?! The press release below says it targets "qualified investors". Maybe this is through the choice of the high price? Apparently the ETF is invested as a swap. They mention further listings to come. I'll be waiting with interest.


December 17, 2010 (Chicago & Zurich) – UBS AG and Hedge Fund Research (HFR) have launched the UBS ETFs plc - HFRX Global Hedge Fund Index SF, the first Exchange-Traded Fund (ETF) built on the industry’s most widely used standard investable benchmark of hedge fund performance globally, it was announced today.

The UBS ETFs plc - HFRX Global Hedge Fund Index SF-I was listed on the Deutsche Boerse Exchange on 3 December 2010 (symbol UIQG). The “SF-I” share class is targeting qualified investors. UBS and HFR anticipate additional listings in coming weeks. The ETF is UCITS III compliant.

With performance dating back to 1998, the HFRX Global Hedge Fund Index is the industry standard for investible hedge fund indices, offering investors access to the benefits of passive indexation in the hedge fund industry. The benefits are achieved through consistent fund selection, leveraging HFR’s industry standard database and classification structure to calibrate strategy weighting and optimize individual fund weightings.

One of the world’s leading financial firms, UBS is headquartered in Zurich and Basle, Switzerland. UBS serves a discerning and international client base with its wealth management, investment banking and asset management businesses. UBS is present in all major financial centers and has offices in over 50 countries. UBS employs more than 64,000 people around the world.

HFR is headquartered in Chicago and is the industry leader in the areas of aggregation, indexation and analysis of the hedge fund industry. The partnership for the ETF leverages the core strengths of both firms.

"We are delighted to bring the UBS plc ETF-HFRX Global Hedge Fund Index to the market. This is a unique opportunity for investors to access the world-leading hedge fund benchmark in a liquid, exchange traded, UCITS compliant form," said Nicolas Samaran, Executive Director in the Fund Derivatives Structuring Group at UBS AG.

“The UBS –ETFs plc - HFRX Global Hedge Fund Index SF represents the first in a new generation of hedge fund index ETFs, offering investors the ability to gain passive exposure to hedge fund performance in a transparent, liquid, and UCITS III compliant manner” said Kenneth J. Heinz, President of HFR. “The construction and versatility of the ETF enables it to be used broadly by both institutional & retail investors to obtain hedge fund exposure efficiently.”

HFRI Performance November 2010

HFRI came in with a preliminary 0.26% gain for November compared to a small loss for HFRX. Most of the results for the different hedge fund styles are pretty similar to HFRX this month too.

HFRX Performance for November 2010

The HFRX daily hedge fund index lost 0.27% for November. Systematic diversified was particularly bad with losses of 3.47% (which explains Moominmama's losses on "commodities"). Equity market neutral did well as did "fundamental growth" which is also an equity hedge strategy.

Hedge Funds: Preliminary Performance for September 2010

Preliminary performance figures for HFRI show an overall gain of 3.37% for hedge funds in September, which is very strong:



There was strength across most styles apart from short bias, of course, as the MSCI World stock index rose 9.6% for the month. HFRX though shows quite different results, but it is based on a smaller sample of funds:



Overall gain was 1.72%. Macro and Systematic Diversified had negative performances according to HFRX but strongly positive performances according to HFRI.