Thames River Multi-Capital attributes the recent disappointing returns from the IMA absolute return sector to the transition of hedge fund techniques to the retail world and market volatility.
In its latest FundWatch survey, Thames River notes that the sector was the fifth worst-performing sector based on Lipper data in the last quarter to December 31, returning 0.2 per cent. The sector was also down by 1.2 per cent for 2011 as a whole.
The funds should have performed better because they are meant to underperform in strongly rising markets and hold up when equities are struggling.
Thames River says it will only invest in absolute return funds where the managers have at least a three-year track record of shorting and using complex investment techniques allowed under the Ucits III and IV rules.
Lipper data shows that of the 26 funds with a three-year track record, 24 have made money and 19 of those have returned cash net of fees in compounded terms.
Thames River holds two very different absolute return funds – Odey UK absolute and Henderson UK absolute. The Odey fund is not viewed by Thames River as a market-neutral fund as it has a long bias with some short positions while the Henderson fund is more of a marketneutral fund.
Thames River co-head Rob Burdett says: “Not every fund manager thinks they can short stocks as well as long. Many conventional managers say selling is the hardest thing to get right and short selling takes that further.”