Rothschild Australia Asset Managementand specialist hedge fund managerBasishave topped the rankings in the inaugural hedge fund sector report by research group InvestorWeb Research.
Rothschild’s GRF fund and Basis’ Australian Rim Opportunity Fund and Pacific Rim Opportunity Fund were the only hedge funds reviewed by InvestorWeb Research to attain the group’s sought after ‘strong buy’ rating.
Of the other funds reviewed by the research group, 11 – including a range of products fromColonial First State,Hedge Funds of Australia (HFA)andPM Capital- were given a buy rating, while the remaining 12 funds were considered investment grade.
The report, released last Friday, also revealed that the global hedge fund market was one of the fastest growing sectors of investment management, with interest within the Australian market also steadily increasing.
According to the report, the number of funds in the global hedge fund market has grown by 20 per cent each year in the past decade, and an estimated US $500 billion funds under management is now invested across 7000 funds.
On the domestic scene, less than two dozen products exist, but interest is growing as alternative investing gains support from institutional and retail investors looking for outperformance. However, the report’s analysis also found that the ability of hedge funds to lower portfolio volatility while enhancing returns in a falling market is often overlooked.
Looking at product development patterns in Australia, the report found that fund managers pitching to retail clients have preferred to develop fund of hedge fund products, while those pitching to institutional clients have focused more on single strategy funds.
Advantages of the fund of funds product were found to be its specialist skill, diversification and access while disadvantages were fees and transparency levels.
The research house’s report also tackles the question of where hedge funds should sit in a portfolio, and what weighting they should have.
“Given the asset class has only recently emerged onto the domestic scene, and consequently has a limited track record, we would suggest that hedge funds make up no more than 25 per cent of a single asset class exposure,” the report says.
