Markets: Hedging their bets

At a conference in Sydney, top hedge funds are not promising outrageous returns.

If you’re hoping your hedge fund will bring you outlandish returns, think again.

In a show of hands at the Australian Hedge Funds Forum in Sydney on Tuesday, few raised their hands when they were asked if they could better a 10 per cent per annum return in stocks over three years or 4 per cent on bonds over the same period.

Adrian Redlich, chief investment officer at Melbourne-based Merricks Capital, says a portfolio with equities and fixed income securities that can garner 7 per cent to 8 per cent a year to 2016 will have a “pretty good” result.

Every day, Redlich reminds himself not to lose money, he told an audience of his peers. He then considers what his return expectations should be, given what he now sees as extreme market positioning by many funds around the world.

The one advantage hedge funds have is that they can hedge out positions, says Redlich. “The overall macro trend will dwarf anything in the micro space,” he says.

The trend in the next 12 months is likely to be dictated by the world’s central banks, particularly the US Federal Reserve.

The Fed will have a new chairman later this year, just the fourth since 1980. That will mean uncertainty and volatility as the Fed enters a “multi year period of unwinding easy (monetary) policy,” says Susan Buckley, managing director of global fixed interest at QIC.

Buckley, in charge of a $1.2 billion hedge fund, says she is optimistic volatility will pick up because of changes in central bank policy, leadership and a different macroeconomic environment.

She is targeting a return of cash plus 5 per cent. In the last 12 months the fund has had an 11 per cent return, investing mainly in the world’s largest economies.

Buckley sees investment opportunities in rates, credit and inflation-related securities. 

Gerard Satur, chief executive of hedge fund MST Capital, says he has been shorting Indian stocks and now is focused on the Japanese market, particularly the yen.

Satur concentrates on large, liquid markets that enable him to get out of positions in an hour if his bets go wrong. Such so-called macro trading strategies, he says, have proved to be one of the few strategies that can make money, if people are smart enough about markets.

But hedge fund managers such as George Soros and Paul Tudor Jones, Satur would admit, are very rare.  

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