Demand for performance has caused equity investors to look elsewhere for real returns, including h...
Demand for performance has caused equity investors to look elsewhere for real returns, including hedge funds, property, venture and private capital, wine, fine arts and antiques.
John Husselbee, director of multi-manager investment at Henderson Global Investors, said: 'The limitations of traditional investment strategies are being exposed. The buy-and-hold strategy doesn't work at the moment.
'There is an increasing appetite for absolute returns among retail investors. They realise relative returns aren't absolute in all conditions.'
Between January 2002 and February this year, UK savings have returned 1%, the JP Morgan Global Traded Bond index -3% and the MSCI World index -32%, on a sterling basis, according to Hendersons.
Husselbee said it demonstrated there is nowhere to hide from negative returns by using traditional asset classes in this environment.
'The opportunities in bonds are not really there as a result of low interest rates,' he added. 'At the same time correlation between equity markets is very strong with the FTSE All-Share, S&P 500, Nikkei 225 and MSCI Europe ex UK moving roughly in line with each other since January 2002.'
Hedge funds have provided absolute returns in falling markets, he noted. Comparing the MSCI World index with the CSFB Tremont Hedge fund index since 1993, Husselbee showed that the two had moved roughly in alignment until December 2000 at which point the MSCI had fallen back substantially while the hedge fund index continued to rise.
He said this relationship still held true when the MSCI index was compared only against the CSFB Tremont sub index of long/short hedge funds, those which have the closest relationship to equity markets.
Using data from the long/short CSFB index and the MSCI World Index in dollar terms, from January 1994 to December 2002, Hendersons has calculated the CSFB index has captured 75% of the upside in the MSCI but only provided exposure to 33% of the downside.
Husselbee, who runs the Henderson Absolute Return Portfolio, suggested accessing alternatives direct is difficult for retail investors as they are expensive, complex, lack investor protection and are unregulated. However, he said, the solution is to buy via a pooled vehicle using a regulated structure that diversifies investments.
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