MAR­KET UNCERTAINTY EN­HANCES

THE AP­PEAL OF HEDGE FUNDS

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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

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