Hedge fund strategies are once again attracting attention from investors. However, this time it is not for the promise of stellar returns, but for their ability to limit negative returns.
Of course, we are not allowed to call them hedge funds anymore - that term died with the advent of the global financial crisis - but there is unmistakeably a rise in funds that use hedge fund-like strategies, including absolute return, total return and long/short tactics.
The new generation of hedge funds are stripped of the aspects that gave them a bad reputation, including excessive levels of gearing, investing in illiquid assets and exhorbitant fees.
They are more likely to offer cash plus a couple of per cent returns, depending on the asset class they invest in, rather than the phenomenal results that made hedge fund managers, such as Jim Rogers, John Paulson and George Soros, both famous and notorious.
Apostle Asset Management will launch a new total return fixed income fund, called the Loomis Sayles Absolute Strategies Fund, in October.
The fund plays into the expectation that bond yields over the long term will decline and investors can generate higher returns by adding a select allocation to an alternative fixed income strategy.
"There are some dynamics at the moment that keep bond yields low, but ultimately supply and demand suggests that there will be more pressure on bond yields. It's just that nobody knows when," Apostle Asset Management investment director Debbie Alliston said.
"As we move closer to that occurring and there becomes less uncertainty in the world, people will see they have risk in their portfolio and want to mitigate that.
"We are not suggesting that people should get rid of their fixed income exposure, but they can potentially add a more opportunistic exposure, which can provide some hedge [to their traditional fixed income investments]."
Pengana Asset Management has just opened a new Australian equities market-neutral fund to institutional investors that combines fundamental stock analysis with quantitative analysis.
Pengana head of distribution Denis Carroll caught the spirit of the new generation of funds perfectly when he said: "People can now spell risk again. This product doesn't aim to shoot the lights out, but aims to participate when the markets go up and at the same time offers protection on the downside."
