MARKET UNCERTAINTY ENHANCES
THE APPEAL OF HEDGE FUNDS
The sluggish growth within the investment landscape coupled with the instability in markets has made it difficult for investors to obtain inflation-beating returns. However, greater calm can be restored by creating a portfolio consisting of products that can take advantage of both rising and falling markets, such as the retail hedge fund investments, which were made available to the South African public this year.
In the current environment, the advantages of hedge funds in a well-balanced portfolio can no longer be ignored. Recent financial market events, and prevailing global economic conditions have meant that even large portfolios across various markets and industries have struggled to generate returns in excess of inflation.
“Adding a portion of one’s assets to hedge fund investments can complement a well-diversified portfolio by lowering the overall volatility, but maintain the return profile.”
Previously, hedge funds were only open to institutional investors, but now, new regulations give retail investors access to these products, while adding protection to minimise the risks normally associated with hedge funds, in a format similar to the well-known South African unit trusts.
In the current environment, a low-risk investment such as hedge funds can protect capital while delivering the expected returns. Due to lower return volatility, these funds don’t participate in the full extent of asset class drawdowns as experienced in both the local equity and bond market, and therefore assist in capital protection.
“As hedge funds can select long or short market exposure, the funds can profit from rising or falling financial markets.”
This reduces risk while delivering absolute returns. Therefore, there’s low correlation to financial which reduces portfolio volatility when used in conjunction with traditional asset classes. Because of the unique characteristics of hedge funds, we believe that retail investors should invest in fund of hedge funds, where specialists will assist in fund selection and monitoring.
Our Mayibentsha Fund of Hedge Funds products were launched in 2003, winning several very prestigious international awards along the way, such as this year’s Hedge Fund Firm of the Year at the global Corporate LiveWire Finance Awards.
Currently, Novare has five retail fund of hedge fund offerings with differing risk profiles. The more conservative product offerings aim to deliver cash + 3% while the more aggressively positioned portfolio aims to deliver cash + 6%. In the current uncertain environment, the availability of hedge funds comes at an ideal time to help investors to weather market uncertainties.
“Low overall financial market correlation reduces volatility in a well-balanced portfolio” - Eugene Visagie, Head of Hedge Funds, Novare