Equity Strategies Ranked Top Performer in 2016 Global Hedge Fund Report

By Chuck Epstein

Consistent performance is a hallmark of good financial management and the 2017 Preqin Global Hedge Fund Report has identified the most consistent strategies and funds in seven categories over short- and longer-term time frames, and also by region.

Based on results from January 2012 to December 2016, Preqin tracked seven leading strategies: equity strategies, macro strategies, event-driven strategies, credit strategies, relative value strategies, multi-strategies and commodity trading advisors (CTAs).

The leading strategy was equity strategies, where all of the top 10 most consistent top-performing funds were in the top decile across four metrics: annualized return, annualized volatility, Sharpe ratio and Sortino ratio. The top equity strategy fund followed a long-short approach. The top-performing strategy category from January 2012 to December 2016 was equity bias/long-short, followed by convertible arbitrage and equity value bias.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

The 14-page 2017 Preqin report ranked funds according to performance, region, 10 separate investment strategy categories for 2016, and from the longer-term period of January 2012 to December 2016.

For 2016, the two top-performing funds were Tribeca Global Natural Resources Fund – Class A Tribeca Investment Partners Long/Short Equity Australia, which delivered a net return of 148.65%, followed by the Montreux Natural Resources Fund – Class A (USD) Montreux Capital Management Commodities, Switzerland, which returned 141.68%. (All returns are reported net of fees and expenses.)

For the longer period, the top two funds were the Passage to India Opportunity Fund (Cayman) – A Shares Arcstone Capital Long Bias, Value-Oriented, located in Mauritius that returned 44.84%, followed by the Japan Synthetic Warrant Fund – JPY Class Stratton Street Capital Convertible Arbitrage, based in the UK, which returned 36.41%.

By region, the top-performing North American fund was the Front Street Canadian Energy Resource Fund – Series F Front Street Capital Long/Short Equity Canada, which returned 132.50% in 2016. From Europe, the Montreux Natural Resources Fund – Class A (USD) Montreux Capital Management Commodities based in Switzerland returned 141.68% in 2016. From Asia-Pacific, the top fund was the Tribeca Global Natural Resources Fund – Class A Tribeca Investment Partners Long/Short Equity based in Australia, which returned 148.65%. Rounding out the geography-based funds was the FAMA Brazil Cayman Feeder Fund FAMA Investimentos Long Bias, Value-Oriented, headquartered in Brazil, which returned 87.04%. Four funds from Brazil ranked in this last category, plus one fund from South Africa.

How the Funds Were Chosen

The methodology used to rank these strategy categories used a percentile rank across four metrics: annualized return, annualized volatility, Sharpe ratio and Sortino ratio. The funds then were graded in a universe of hedge funds with matching strategy criteria and full performance data up to December 2016 on Preqin’s Hedge Fund Online database.

Each fund was then given an “average score” derived through an average of the four percentile values used to determine fund consistency. Preqin said that where a Sortino ratio could not be calculated due to the fund not generating a negative return in the sample period, the fund received a percentile score of 100 for its Sortino ratio metric.

All Not Well in the Hedge Fund World

While the 2016 Preqin report researched the top global funds, another new report from educational endowments and foundations found conducted by the Commonfund and National Association of College and University Business Officers (NACUBO) found that 2016 returns for all alternative strategies were negative.

The poorest performer was commodities and managed futures, at -7.7%, up from -17.7% in 2015, followed by energy and natural resources, which returned -7.5% compared with -13.3% in 2015. Marketable alternative strategies (hedge funds, absolute return, market neutral, long/short, 130/30, event-driven and derivatives) returned -4.0% versus 2.7% in 2015, while distressed debt returned -0.6% compared with 5.4% in 2015.

Of the alternative investment strategies in FY 2016, private equity real estate (non-campus) provided the highest return, at 7.1%, down from 9.9% in 2015. Private equity (LBOs, mezzanine, M&A funds and international private equity) posted a 4.5% return, down from 9.3% in 2015. The top return strategy in 2015 was venture capital, posting a return of 15.1%, but this declined in 2016 with a return of 1.5%.

The NACUBO data was gathered from 805 US colleges and universities and were reported in the 2016 NACUBO-Commonfund Study of Endowments® (NCSE.)

Also mentioned 2 paragraphs down using same language

By Poonka Thangavelu

Institutional investors are more inclined to take an active stance to their investments in 2017, and reduce reliance on cash holdings, according to a BlackRock survey of 240 large institutional investors. The New York investment management firm reports that while 25% intend to cut down on cash holdings this year, only 13% planned to increase their cash exposure.

These investors are also looking to chase higher yields and look beyond the core asset classes. They have been moving towards less liquid assets for the past three years, and that trend also is evident in the current survey. In recent years, investors have been hurt by the low-rate environment, which has evened out the recent uptick in stocks. They have also been impacted by the underperformance of global equities and negative returns on fixed-income investments.

And considering the prospect of an inflation pick up this year, institutional investors have become more open to taking on risk, according to the survey. “The tide of institutional investor interest in less liquid assets is turning into a wave, with a significant uptick in allocations anticipated as they seek alternative ways to generate returns and income,” according to Edwin Conway, Global Head of the Institutional Client Business at BlackRock.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

Accordingly, 61% of these investors globally are favoring allocations to real assets such as commodities, timber, infrastructure and farmland. About 53% of US and Canadian institutions are looking to increase their exposure to real assets on a net basis, after accounting for those looking to reduce their exposure. Institutions also favor real estate allocations, with 47% globally planning to increase their exposure. And 29% of US and Canadian institutions favor this investment, after accounting for reductions in real estate allocations by some. Private equity is another sought-after investment avenue, with 48% globally and about a third in the US and Canada, on a net basis, looking to gain more exposure to this investment category.

Institutional investors are also looking at private credit as a fixed income investment that offers the prospect of higher returns, with 61% of the respondents looking to take on more such exposure. They also favor US bank loans, high-yield, emerging market debt, and securitized debt for higher allocations in non-core credit areas. US and Canadian investors expect their exposure to fixed income allocations to remain flat.

Hedge fund investments are becoming less sought after, with 22% more corporate pension funds globally, led by US and UK funds, looking to cut down their exposure, after accounting for those inclined to increase their allocations to hedge funds. The investors are moving more towards bonds of long duration. Worldwide, only 28% of investors favor active equity strategies over passive strategies. Corporate pension plans lead the drive for US and Canadian institutional investors to reduce their equities holdings, with 34% of institutional investors on a net basis expecting to reduce their exposure.

And in a PIMCO asset allocation outlook report for 2017, Mihir P. Worah, PIMCO’s CIO asset allocation and real return and a managing director, and Geraldine Sundstrom, PIMCO’s portfolio manager, asset allocation, expect overall that the environment for 2017 will likely provide active managers many opportunities to make a mark by adding value.

They state, “We face a future where position on the business cycle, trends in earnings growth, as well as fiscal, tax, and trade policies could favor certain regions, industries and sectors over others. This should lead to – and has already – greater dispersion and less predictable correlations, making passive investing risky, and bottom-up analysis just as important as top-down macro.”

BlackRock conducted this survey in November and December 2016, after the election of Donald Trump as US president. The 240 institutions surveyed account for more than $8 trillion in assets.