Boom Time
Relative-value strategies are thriving.
The average hedge fund pursuing the investing style has returned 3.06 percent this year through July, after climbing 6.82 percent in 2017, according to data from Eurekahedge Pte. That compares with a return of less than 1 percent for hedge funds overall this year through July, according to Mohammad Hassan, analyst at the Singapore-based firm.
“Relative-value hedge funds generally produce consistent returns as they take out the element of directionality present in other long-biased mandates,” he said. “When it comes to downside protection, relative-value hedge funds do very well.”
Demand for hedge funds is the highest in at least three years, according to a Credit Suisse Group AG survey released Tuesday.
Sales of structured notes also appear to be picking up, with investors turning to customized strategies as the post-crisis bull run shows signs of splintering. In Switzerland, where UBS is headquartered, sales and trading volume in the second quarter increased by 17 percent from a year earlier to 83 billion Swiss francs ($83.4 billion), according to a local trade group.
Relative Value
Compared with index-based vehicles like exchange-traded funds, structured securities still leave a lot to be desired. While the Swiss bank provides a daily price at which it is willing to buy back the notes, liquidity outside of the issuer is limited.
The UBS instruments don’t track clear benchmarks, with holders compelled to manually calculate performance during the product’s lifetime. While the UBS notes come with stop-losses, with leverage adjusted accordingly, they lack capital protection, a feature common to many structured products.
And though they’re arguably more cost-effective than hedge funds, whether such securities are an effective alternative to elite vehicles is far from certain.
“Market timing can be a big aspect of return generation,” said Eurekahedge’s Hassan. “When do you decide to go into the market and when do you decide to go out? A rigid rules-based methodology may not offer as much wiggle room and oversight compared to an active manager.”
This article was provided by Bloomberg News.