Globe and Mail – You won’t find a better stress test for a hedge fund than the miserable month of May on the stock markets this year.
“May will be a very good indicator,” said Tony Sanfelice, president and CEO of Canadian Hedge Watch, a leading provider of hedge fund research and education. “If a fund has made a little bit of money in May, they’ve done extremely well, in my opinion.”
Mr. Sanfelice said interest in hedge funds tends to pick up dramatically when stock markets are choppy or falling, and the reason is simple. Hedge funds have the ability to use short selling, a strategy that permits profits to be made off the share price declines that hammer most investors who own stocks, exchange-traded funds and mutual funds.
Today’s Portfolio Strategy column is all about how to pick a hedge fund or, as they’re sometimes called, an alternative strategies fund. A good start is to not be overly influenced by the market-beating mystique of hedge funds, or the cynicism that has come out of hedge fund disasters like Portus Alternative Asset Management and Norshield Financial Group, both of which are now in receivership with investors owed hundreds of millions.
Canadians have about $25-billion invested in hedge funds today, according to Canadian Hedge Watch, and the quality level ranges from superb to pathetic, just as it does in the mutual fund world. The difference between hedge funds and mutual funds is that you have to work much harder to find a good hedge fund.
