Going forward, the better managers of equity market neutral funds will be those who use intensive bo...
Going forward, the better managers of equity market neutral funds will be those who use intensive bottom-up stock selection techniques, says one of the top performers in this basket of funds from Standard & Poor's.
Ranked number five, American Market Broad Master ' a proprietary fund of Tremont Advisers based in Rye, New York ' is up 54.08% over three years. The basket as a whole has risen about 30% from 1 May 1998 to 1 May 2001.
Barry Colvin, chief operating officer at Tremont, said: 'Recent conditions have favoured long/short equity fund managers who are careful stockpickers and we expect those to continue to do well in the medium term.'
He added that in many cases these managers undertake rigorous fundamental research.
However, Colvin warned: 'It has become a much less profitable game for those who are basing trades on trends and has become a much better game for those who do not rely on the direction of the market but on individual stock selection.'
Colvin would not say which type of fund the American Market Broad Master is, specifically he would not say if it was a long/short US equity fund or who its fund manager was. 'We are not able to divulge the strategy of any of our funds,' he said. He also would not state the fund's exact size but said it was more than $200m.
Colvin was, however, prepared to talk on more general matters. He said there has been a large amount of money injected into hedge funds in the US over the past 18 months and the market neutral asset class, along with funds using convertible arbitrage strategies, has attracted much of that cash.
According to Colvin, event-driven, convertible arbitrage and equity market neutral funds all take advantage of volatile markets. 'However, over the past few months volatility has dropped and that has had a negative impact on those strategies,' he said. 'Opportunities to generate superior returns decrease as volatility decreases but they are still attractive and there has been a meaningful amount of money going into them. Long/short equity strategies in particular have been popular and they have done well in the past year and a half.'
Overall Colvin is upbeat. 'There may be some pitfalls to look out for but there are also some great opportunities given the amount of liquidity and assets flowing into the marketplace in the past year and a half,' he said.
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