Rethink your hedge fund gameplan
The Springbok’s recent win at the 2023 Rugby World Cup showed everyone that saving one’s side from a sure try has just as much value as scoring one. Their valiant defensive efforts ensured that the Boks took home the trophy for the fourth time. It’s much the same in investing – it’s not only about what you make, but also about what you keep.
In the dynamic world of investments, hedge funds have emerged as crucial players, analogous to a team's formidable defence on the rugby field. A resurgence in hedge fund interest has been sparked by factors such as increased accessibility and the uncertain equity landscape. This resurgence prompts investors to rethink their gameplan and consider incorporating hedge funds into their strategies.
The strong performance and unique strategies offered by Amplify Investment Partners’ hedge funds have enabled it to grow hedge fund assets from R1.4bn to R4.5bn in almost four years, head of investor relations for Amplify, Emma Pretorius says.
“We strongly believe you need to blend hedge funds, as a lot of the risks associated with hedge funds can be mitigated by blending. Our funds range from cautious to aggressive, from long-short equity to fixed income and multi asset, enabling us to provide investors with a one-stop shop,” she says.
The funds all have different strategies, play on different parts of the yield curve and have low correlation to each other, which makes them ideal for blending.
Hedge funds are providing significant protection as markets become increasingly volatile. Most investors were expecting rampant inflation and recession in major global markets just a short while ago, only to find that they have to quickly rethink their strategies and positioning. Risk management has become increasingly challenging for fund managers as volatility only seems to increase with geopolitical events and swings in inflation, interest rates and economic growth.
Hedge funds can help to smooth the ride. Adding hedge funds to a portfolio provides investors with exposure to uncorrelated returns to traditional equity or bond portfolios, and with reduced risk. With the ability to take long and short positions, and use derivatives, hedge fund managers have additional capabilities to enhance defensive play, to keep the risk low, to not lose, and to be in the position to go for the try.
Amplify’s hedge fund range includes a cautious range of four fixed income funds as well as a market neutral fund with low correlation to each other as well as market indices such as the ALSI and ALBI and various Association for Savings and Investment South Africa (ASISA) categories, which would make this blend a perfect complement to a traditional portfolio. Pretorius says the cautious blend presents less risk than the ASISA MA Low Equity category, but basically double the returns. It has comfortably outperformed CPI plus 3% and plus 4% and has experienced significantly less drawdowns than low and medium equity category averages.
By reducing portfolio volatility and mitigating large portfolio drawdowns, you need to work significantly less than the investor whose portfolio suffers large losses and consequently has to work exponentially harder to simply break even. To put it concisely, you are winning by not losing.
*Sanlam Collective Investments
