Man Investment Products has unveiled Man multi-strategy series 3, a fund of hedge funds that is structured as a capital guaranteed bond.
The bond is based in Bermuda and investors can choose between dollar-denominated bonds, euro-denominated bonds or a mixture of both. They are guaranteed at least the return of their original capital and if the bond performs well, the guarantee will increase accordingly.
The bond will invest in a range of hedge funds from different managers that use different strategies. Long and short selling is the most popular strategy. Fund managers buy shares they think will go up in price and sell those they think will go down, with a view to buying them back when the value has fallen.
Managed futures invest in futures contracts so if, for example, the price of oil goes up, the fund manager will buy shares in oil. Market neutral involves trying to make a profit by buying and selling stocks within the same sectors, while arbitrage involves buying convertible bonds and selling the underlying investments short. Event driven strategies invest in companies undergoing events, like takeover bids or financial difficulties.
This product is likely to appeal to high-net-worth investors who are comfortable with high risks in return for potentially higher rewards. According to the latest report by independent performance analysts at the Allenbridge Group, the returns from hedge funds now stand at around 3.85 per cent, compared 21.5 per cent in 1999. However, despite this decline, they are still outperforming conventional funds like unit trusts and Oeics.