Van Eyk predicts tough times for shorting managers
Hedge fund managers employing a long bias in their equity strategies will benefit from stabilising investment markets over the next few years at the expense of managers adopting shorting strategies, claimsvan Eyk Research.
The research group’s Australian Long Short Equities Review 2003 warns the impressive long short returns achieved over the past three years, with some managers delivering 31 per cent returns, are unlikely to continue with traditional long equity strategies to benefit in the medium-term as investment markets steadily recover.
“We believe the next three years are unlikely to be as favourable [to non-long bias managers] as the equity market reverts back to more normal behaviour. In other words, long only managers, or managers with a long bias and a relative return focus, are likely to do better as most stocks in the index will be going up,” says van Eyk associate director Dragana Timotijevic.
Timotijevic, says long short funds had become popular due to an ability to produce returns in both rising and falling markets, however stabilising markets are likely to see this style of investing decline in favour.
The review, covering 11 Australian equity funds capable of short-selling stocks, found the performance of absolute return managers (returns uncorrelated with equity markets) had been very strong, with managers achieving an average of 21 per cent over the three years to March 31 2003.
“The volatile and the generally falling market over the last three years has been almost ideal for absolute return strategies,” Timotijevic says.
Relative return strategy managers, those with a higher exposure to markets and which Timotijevic argues market conditions will favour going forward, reaped an average 10.1 per cent return over the three years to March 31 2003, the report claims.
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