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Monday 23 February 2009
Managed futures bear fruit in barren marketplace
While many investors have given up on the market after watching their portfolios ravaged by volatility, an alternative investment product called managed futures funds is proving that there may be hope for them yet.
While many investors have given up on the market after watching their portfolios ravaged by volatility, an alternative investment product called managed futures funds is proving that there may be hope for them yet.
Managed futures are designed to take advantage of market trends by using sophisticated software to track multiple asset classes across every major market in the world. And they can deliver returns during down markets through the use of short positions, which allow them to profit from correctly predicting falling prices.
“Managed futures during any extremely difficult market period have performed extremely well,” said Johann Santer, managing director at Superfund in Hong Kong.
“It’s very flexible. The portfolio is basically adjusting to the movements in the market and goes where the trends are.”
Superfund’s trading strategies, which are available in Hong Kong and across the region only to professional investors, surged between 35 and 75 per cent last year while financial markets crumbled. But they also profited during bull-market years as well and have averaged an annual return of between 18 and 32 per cent in a history that stretches back about nine years.
Mr. Santer attributes the strong performance to being diversified and spreading bets across the investment spectrum.
The Austria-based fund house’s trading strategies could have positions in 100 different financial and commodity futures markets across the world, giving it a broad scope. That allows it to run the gamut of positions in everything from currencies to corn, and equities to energy.
“Managed futures could trade most of the things you could see on your breakfast table like orange juice, corn, wheat, cocoa, coffee, sugar,” Mr. Santer said.
“It is basically the only strategy which really achieves true diversification. It’s not correlated to equity markets, bond markets, real estate and even better, it’s not correlated to any other hedge fund strategy.”
The use of automated trading mechanisms underpins most managed futures strategies. In addition to tracking far-flung markets, computerised operations also facilitate rapid trades that can take advantage of short-lived pricing points.
“When you use the computer, you can search all of the markets in the world and then find which market has a trend and then trade in it,” said Ricky Tam Siu-hing, a director at Champlus Asset Management. “So when you use a computer, you have a better tool for entry points.”
And that gives futures traders an edge, helping them to place their short calls with greater precision, he added.
Automated trading systems also strip emotion out of the equation by using strict cut-loss mechanisms. Market watchers said this was a key reason why managed futures were successful last year while other funds fell by the wayside after being dragged down by positions in securities with escalating losses.
“Managed futures as a strategy has been gaining a lot of attention recently since it’s one of the very few strategies that performed in 2008,” said Giselle Lee, head of sales at Man Investments in Hong Kong.
Ms. Lee said Man was first to launch a managed futures fund in Hong Kong available to retail investors with Man AHL Diversified Futures in May 1998. The fund house has since expanded its range of products to meet growing interest.
“Those products have also been very successful, proving that there is definitely a space for managed futures allocation in a retail investor’s portfolio,” Ms. Lee said.
But managed futures still occupy just a small corner of Hong Kong’s bustling asset management industry. Investors are more familiar with the types of funds that are long-only and target a particular theme or region.
Mr. Santer said Superfund was hoping to increase headcount over the next one to three years from a current level of about 20. But he acknowledged that expansion efforts had been slowed by local investors’ lack of awareness of managed futures strategies.
“In general in Asia, and especially in Hong Kong, you cannot really change people’s minds. They are very equity-driven, very China-story-driven,” Mr. Santer said. “So we still talk about the product more for healthy diversification benefits for professional portfolios.”
And with only a handful of managed futures products available to the Hong Kong investment community, the strategy is still operating from a relatively small base.
“For managed futures, it is not easy to find a good fund manager,” Mr. Tam said. Investors may also be reluctant to pay the higher management and performance fees typical of alternative product investments.
Mr. Santer said Superfund’s fees were not excessive. “Within the managed futures funds [sector], they are not cheap, but they are also in line with some of the competitors.”
And with so few funds actually delivering positive returns, investors who had their fingers burned last year might just be willing to pay extra for some peace of mind.
1 comment:
Managed futures bear fruit in barren marketplace
Nick Westra
22 February 2009
While many investors have given up on the market after watching their portfolios ravaged by volatility, an alternative investment product called managed futures funds is proving that there may be hope for them yet.
Managed futures are designed to take advantage of market trends by using sophisticated software to track multiple asset classes across every major market in the world. And they can deliver returns during down markets through the use of short positions, which allow them to profit from correctly predicting falling prices.
“Managed futures during any extremely difficult market period have performed extremely well,” said Johann Santer, managing director at Superfund in Hong Kong.
“It’s very flexible. The portfolio is basically adjusting to the movements in the market and goes where the trends are.”
Superfund’s trading strategies, which are available in Hong Kong and across the region only to professional investors, surged between 35 and 75 per cent last year while financial markets crumbled. But they also profited during bull-market years as well and have averaged an annual return of between 18 and 32 per cent in a history that stretches back about nine years.
Mr. Santer attributes the strong performance to being diversified and spreading bets across the investment spectrum.
The Austria-based fund house’s trading strategies could have positions in 100 different financial and commodity futures markets across the world, giving it a broad scope. That allows it to run the gamut of positions in everything from currencies to corn, and equities to energy.
“Managed futures could trade most of the things you could see on your breakfast table like orange juice, corn, wheat, cocoa, coffee, sugar,” Mr. Santer said.
“It is basically the only strategy which really achieves true diversification. It’s not correlated to equity markets, bond markets, real estate and even better, it’s not correlated to any other hedge fund strategy.”
The use of automated trading mechanisms underpins most managed futures strategies. In addition to tracking far-flung markets, computerised operations also facilitate rapid trades that can take advantage of short-lived pricing points.
“When you use the computer, you can search all of the markets in the world and then find which market has a trend and then trade in it,” said Ricky Tam Siu-hing, a director at Champlus Asset Management. “So when you use a computer, you have a better tool for entry points.”
And that gives futures traders an edge, helping them to place their short calls with greater precision, he added.
Automated trading systems also strip emotion out of the equation by using strict cut-loss mechanisms. Market watchers said this was a key reason why managed futures were successful last year while other funds fell by the wayside after being dragged down by positions in securities with escalating losses.
“Managed futures as a strategy has been gaining a lot of attention recently since it’s one of the very few strategies that performed in 2008,” said Giselle Lee, head of sales at Man Investments in Hong Kong.
Ms. Lee said Man was first to launch a managed futures fund in Hong Kong available to retail investors with Man AHL Diversified Futures in May 1998. The fund house has since expanded its range of products to meet growing interest.
“Those products have also been very successful, proving that there is definitely a space for managed futures allocation in a retail investor’s portfolio,” Ms. Lee said.
But managed futures still occupy just a small corner of Hong Kong’s bustling asset management industry. Investors are more familiar with the types of funds that are long-only and target a particular theme or region.
Mr. Santer said Superfund was hoping to increase headcount over the next one to three years from a current level of about 20. But he acknowledged that expansion efforts had been slowed by local investors’ lack of awareness of managed futures strategies.
“In general in Asia, and especially in Hong Kong, you cannot really change people’s minds. They are very equity-driven, very China-story-driven,” Mr. Santer said. “So we still talk about the product more for healthy diversification benefits for professional portfolios.”
And with only a handful of managed futures products available to the Hong Kong investment community, the strategy is still operating from a relatively small base.
“For managed futures, it is not easy to find a good fund manager,” Mr. Tam said. Investors may also be reluctant to pay the higher management and performance fees typical of alternative product investments.
Mr. Santer said Superfund’s fees were not excessive. “Within the managed futures funds [sector], they are not cheap, but they are also in line with some of the competitors.”
And with so few funds actually delivering positive returns, investors who had their fingers burned last year might just be willing to pay extra for some peace of mind.
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