Boutique fund manager Eight Investment Partners (8IP) is predicting an extended bull market and elevated Australian dollar, saying that a hedged approach to international equities is the best way to gain alpha in the current environment.
8IP chief investment officer Kerry Series said that bull markets, such as the one we have seen in global markets since the markets began to rebound in March 2009, usually tend to last for five to seven years.
Series also predicted the Australian dollar to maintain elevated valuations for an extended period, which would hurt the returns of the majority of managers who take an unhedged approach to global equity portfolios.
“The strong Australian dollar will continue to cause big problems for advisers and clients, and unhedged investing will continue to make little money,” he said.
The strong Australian dollar is also putting the squeeze on the Australian stock market, with the exception of resources stocks which continue to benefit from high demand from Asia, although few managers are currently overweight to resources, he said.
Most international equity funds either aren’t actively managed or are invested on an unhedged basis, which is why returns have not been strong, he said.
Asia provides an opportunity to invest in stocks that can generate alpha, but you still need to manage the currency aspect, he said.
In 2010 the MSCI AC TR Net Asia Pacific Index returned 18.9 per cent in US dollars, but only 4.6 per cent in unhedged Australian currency, whereas 8IP’s Asia Pacific Partners Fund returned 29.2 per cent from its 22 February inception, Series said.
The high-conviction fund generally holds 10 to 20 stocks and is currently being marketed to sophisticated and high-net-worth Australian investors, in particular self-managed super fund trustees, with a minimum investment of $250,000.
The fund currently holds $13 million in assets, and 8IP has $220 million in total funds under management including three other more institutional funds. The firm has institutional backing through its majority shareholder, South African financial services giant Sanlam.
