Absolute return fund of hedge funds (FOHFs) are indispensable to self-managed super funds (SMSFs) for both returns and diversification, according to HFA Research investment manager Peter Coates.
Speaking at Tribeca’s fourth annual SMSF conference in Sydney this week, Coates said the absolute return FOHF has “proved its worth historically in both protecting SMSF portfolios from risk and driving upside”.
By combining various hedge fund strategies, absolute return FOHFs offer SMSFs an “accumulative effect that has outperformed equity markets over the longer-term time frames”, he said.
“They may not have outperformed over the past 12 months or over the past three years, but they have over the past five to 10 years, generating an average 8 per cent to 12 per cent on average over the latter period.
“You can generate phenomenal returns over the period by accumulating 8 per cent to 12 per cent each year.”
The low to medium risk profile of FOFHs is ideal for SMSF trustees in their 40s to 60s who also want to accumulate an absolute return while also reducing their risk, he added.
“Certainly, if you are in the draw down phase you are taking on a fair amount of risk if you are still heavily invested in equities or commodities, properties or even credit (high yield bonds).
“A much safer risk profile to preserve your capital is to be invested in FOFHs and absolute return funds, along with products such as investment grade bonds and treasury bonds, cash deposits, and direct property.”