Elston
  • WHO WE ARE
    • About
    • Contact
    • Insights
    • Events
    • Press
  • WHAT WE DO
    • Portfolio Solutions >
      • Our Portfolios
      • Custom Portfolios
      • Retirement Portfolios
    • Fund Solutions >
      • Our Funds
      • Custom Funds
      • Retirement Funds
    • Index Solutions >
      • Our indices
      • Custom Indices
      • Retirement Indices
    • Research >
      • Portfolio Analytics
      • Research Library
      • Regulatory Research
    • CPD
  • WHO WE HELP
    • Financial Advisers
    • Discretionary Managers
    • Asset Managers
    • Asset Owners
    • 中文

Insights.

February 22nd, 2019

22/2/2019

0 Comments

 
Picture
Consumers love a new product launch. Just look at the queues outside Apple Stores when a new iPhone comes out, or the enduring popularity of car magazines with their sneak peaks of the latest models.


But launches of investment funds are different. With both of the examples I mentioned — smartphones and cars — you expect the new product to be substantially better than the last one; if it isn’t, it’s slated in the press.


We already have far too many funds to choose from and, in the vast majority of cases, new funds are no better than what we already have. What they tend to be though is different to all the other funds out there, and it’s that which ensures they attract publicity.


Fund management companies thrive on that publicity. They launch new products, in short, not because they will deliver better outcomes for consumers, but because they believe they will sell.


A classic example is a new Aberdeen fund called the ASI HFRI-I Liquid Alternative fund, which will track an index of about 140 Europe-based hedge funds. Effectively it will give investors with at £5 million to invest access to average hedge fund returns.


The fee of 30 basis points, or 0.30%, certainly seems attractive. But why would anyone seriously want to ape typical hedge fund performance?


Hedge funds were all the rage in the 1990s, and some funds performed spectacularly well. Even taking into account the eye-popping fees they paid, some investors prospered. But hedge funds generally fared very badly in the global financial crisis and have failed to regain their golden touch ever since.


As the Bloomberg columnist Nir Kaissar recently explained, instead of trying to make money, hedge funds “pivoted to not losing it”.


“The new objective,” Kaissar wrote, “was to manage risk by protecting investors during downturns and delivering returns that are uncorrelated with the stock market. 


“It’s hard to imagine a lower bar, and incredibly, hedge funds failed to clear it… The equity hedge index has posted a negative one-year return 26 times since 2010, based on monthly returns, with an average decline of 4.4%.”


There have been several different explanations as to why hedge fund performance has dropped off so badly over the last decade. Perhaps the most plausible one is that there is simply too much money chasing too few opportunities.


You might have thought that, in view of the dismal returns that hedge funds have delivered in recent years, investors would have started to desert them. In fact the opposite has happened. According to Hedge Fund Research, the data group collaborating with Aberdeen on the ASI HFRI-I fund, assets invested in US-based hedge funds reached a record $955 billion in September 2018.


With more money invested in hedge funds than ever before, your chances of beating the market over long periods are very slim.


The irony is that this new Aberdeen fund may well prove very popular. Institutional investors, who traditionally like investing in hedge funds, tend to be very conservative — slow to embrace new ideas and discard old ones. Added to that, there’s still a social cachet connected to hedge funds. Also, of course, there are many investors who can’t resist a little gamble.


The ASI HFRI-I fund, then, will probably be good for Aberdeen shareholders and, of course, for already very well remunerated hedge fund managers. But will it be good for those who invest in it? Relative to investing in a regular, low-cost, equity index fund, it almost certainly won’t.
0 Comments



Leave a Reply.

    ELSTON RESEARCH

    Insights

    Archives

    March 2021
    February 2021
    January 2021
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    September 2019
    June 2019
    April 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    July 2017
    May 2017
    March 2017
    February 2017
    January 2017
    November 2016
    October 2016
    September 2016
    July 2016
    June 2016
    May 2016
    February 2016
    January 2016

    Categories

    All
    Alternative Assets
    Alternative Strategies
    Bonds
    Business Practice
    Equity Income
    Equity Sectors
    ESG
    ETFs
    Factor Investing
    Guide To Investing
    Macro
    MULTI ASSET
    Multi Asset Income
    Multi-Asset Income
    Portfolio Construction
    Retirement Investing

    RSS Feed

Company

Home
About
Press
Terms of Use

Services

​​Research
Analytics
Portfolios
Funds
Indices
​Custom Indices

Support

​Insights
​CPD
​Events
​​​Contact
© COPYRIGHT 2012-20. ALL RIGHTS RESERVED.
  • WHO WE ARE
    • About
    • Contact
    • Insights
    • Events
    • Press
  • WHAT WE DO
    • Portfolio Solutions >
      • Our Portfolios
      • Custom Portfolios
      • Retirement Portfolios
    • Fund Solutions >
      • Our Funds
      • Custom Funds
      • Retirement Funds
    • Index Solutions >
      • Our indices
      • Custom Indices
      • Retirement Indices
    • Research >
      • Portfolio Analytics
      • Research Library
      • Regulatory Research
    • CPD
  • WHO WE HELP
    • Financial Advisers
    • Discretionary Managers
    • Asset Managers
    • Asset Owners
    • 中文