Ermitage has launched a fund of hedge funds investing in diversified strategies in the North America...
Ermitage has launched a fund of hedge funds investing in diversified strategies in the North American market.
The fund's remit is to provide exposure to potential gains in the US equity market while attempting to limit any losses in the event of a market correction.
Ron Mitchell, director of Ermitage, said: "The fund will invest in hedge funds that are long and short the US equity market. Esoteric investment strategies and complicated securities are largely avoided in favour of clear-cut, single strategy equity hedge funds.
"Only a small amount of leverage is employed. Most of the funds are less than 200% invested, summing the long and short exposure, and the majority will be significantly less than 100% net long.
"The component hedge funds seek to extract returns from across the US equity markets and are diversified by industry sector, market cap, regional focus and investment approach. We take care to build a portfolio of funds where each one offers a distinct source of investment return.
"The fund has also been constructed so that a core portfolio of lower risk, market neutral funds and short-sellers is augmented by a higher returning portfolio of directional net long funds."
Roughly half of the total exposure is to equity market neutral hedge funds.
Mitchell said: "These typically have return objectives in the region of 15%-18% and attempt to generate positive returns irrespective of the prevailing direction of the US equity markets. Their strategies generally exploit mispricings between related equities by going long the cheaper stock and short the more expensive stock.
"A further 20%-25% of exposure is in relatively conservative long bias equity funds that attempt to match S&P returns but with significantly less than 100% market exposure, through the stockpicking ability of the fund managers."
Roughly 10% of the fund is then allocated to more speculative funds that are willing to accept a similar level of volatility to the equity index but which set themselves the objective of achieving higher returns than the S&P.
Mitchell said: "Bear in mind that all of the funds in the portfolio have demonstrated a proven expertise in short-selling US stocks and would be expected to suffer smaller losses in a down market than the S&P or an index-tracking mutual fund.
"The fund is also insulated against S&P drawdowns by a meaningful allocation to specialist short-sellers. These generate almost all of their returns when the index is down, and deliver their best performances in months such as August 1998, when the equity market panics.
"As the US equity market becomes increasingly overvalued and unstable we believe that the case for a diversified investment vehicle which has both long and short exposure is compelling."
The minimum investment in the Bermuda-based fund is $15,000.
The initial charge is 5% while the annual management fee is 1.125% with an annual administration fee of 0.375%.
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