All four trading strategies used by hedge funds yielded returns ranging from satisfactory to strong, with two funds delivering double-digit returns for the first time since November 2004.
According to Nedgroup Investments Alternative Investments Manager Lizelle Steyn, who produces the hedge fund review, for the third quarter of 2005 the Nedgroup Hedge Fund Index returned 8.3%, compared to the Besa All Bond index gain of 1% and the 20.3% rise in the FTSE-JSE All Share index.
Meanwhile, for the year to 30 September, the Nedgroup SA Hedge Fund Index rose by 22.6%, with an annualised standard deviation (a measure of volatility or risk) of a comparatively low 4.3%. This performance compared to bond returns of 13.6%, with a standard deviation of 6.1% for the year to date, and strong equity gains of 47.8%, with a standard deviation of 15.4%.
The STeFI Interbank Call Rate for the same period was 6.7%.
Steyn pointed out that over the longer term (through a bear and a bull phase in the equity market), hedge funds emerged as the asset class with a superior risk-return profile. Since its inception on January 1, 2001, the Nedgroup SA Hedge Fund Index delivered an annualised return of 23.5% per annum at a volatility of 7.1%. Over the same period the FTSE/JSE All Share Index generated returns of 20.5% p.a. at a volatility of 19.9%.
The Besa All Bond Index return and the STeFI Interbank Call Rate for this period are 15.2% p.a. and 9.5% p.a. respectively, at annualised volatility levels of 6.9% and 0.7%.
“The main aim of most hedge funds is to protect investors against the down side in the market,” she noted.
The Nedgroup SA Hedge Fund Index displayed close to no correlation with the FTSE/JSE All Share Index at -0.01. Monitoring month-to-month returns, the maximum draw-down of the hedge fund index was 9%, while the equity index lost more than 30% (from June 2002 to April 2003).
In terms of individual hedge fund performance (unadjusted for risk), Armin Diem’s Absolute Alpha Fund (long-short equity) took the honours for best returns over the one-year period to end-September at 66.9%, out of all categories.
In second place was the Oryx Segregated Fund (long-short equity) with a one-year return of 54.3%.
Over the two-year period to end-September, Peregrine Capital’s High Growth Fund (long-short equity) ranked tops with a return of 45.7%, followed by the Oryx Segregated Fund at number two with 44.4%.
