About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds Other Sites:   depositrates.co.nz  |   landlords.co.nz
Last Article Uploaded: Friday, February 12th, 2:23PM
rss
Investment News

Are hedge funds a seperate asset class?

Frank Russell's Andy Turner looks at the vexed question of whether or not hedge funds are an asset class, and how should they be used in a diversified portfolio.

Monday, October 22nd 2001, 11:58AM

by Philip Macalister

Hedge funds are proving to be very popular with investors in New Zealand and around the world at the moment.

Two of the key questions advisers and investors should be asking are: Are hedge funds a separate asset class and how should they be included in a well-diversified portfolio?

Frank Russell's Tacoma-based manager of investment policy and research Andy Turner is quite clear that hedge funds are not a separate asset class.

To determine whether an investment type, or group, can be called an asset class it needs to be compared against six key criteria.

  1. To be an asset class the investments need to be conceptually similar securities. He says hedge funds fail this test as they can include a wide away of securities, including equities, bonds, currency, commodities etc.
  2. There needs to be high correlation between the various investments within an asset class. Again hedge funds fail, primarily for the same reason they failed the first test. Hedge funds can include a wide range of securities, consequently there is little correlation.
  3. The asset class, or wannabe asset class, has to be material. Turner is in no doubt that hedge funds are material as there is more than US$1 trill invested in the area. If debt, or leverage, is included the figure is probably considerably higher.
  4. An asset class has to have a good set of available and reliable data. Turner says one of the problems with hedge funds is that much of the data is either missing or at best suspect, so it's impossible to make comparisons on a level footing. (More on this later).
  5. An investor should be able to invest passively in an asset class, that is buy an index. "Dream on," Turner says about hedge funds.
  6. The final characteristic of an asset class is that it has to be something new, and exclusive. Turner says hedge funds don't pass this test as they are just another way of investing in the so-called traditional asset classes, such as shares and bonds. "Hedge funds are double counting a significant number of other assets."

On Turner's count hedge funds only pass one of these six tests, so they can't be considered a separate asset class.

"They don't stack up very favourably." Turner says.

How then, should an investor include hedge funds in a diversified portfolio?

Turner's view is that because hedge funds aren't an asset class they shouldn't be used in a strategic asset allocation.

"We think (hedge funds) are out in terms of your strategic asset allocation," he told delegates at Frank Russell's Australasian conference last week.

Although Turner raises some concerns about hedge funds from an asset allocation point of view, he is not saying don't use them.

"For some people we think these are a good idea."

Those investors maybe ones who have larger percentage of their money in equities.

For people who don't have a lot of shares, they there are better, more risk controlled options for ramping up returns.

You can read Philip's blog here: http://www.goodreturns.co.nz/blog/

« Ethical investing: Watch out for the coming waveKing builds an empire »

Special Offers

Commenting is closed

 

print

Printable version  

print

Email to a friend

Good Returns Investment Centre is bought to you by:

Subscribe Now

Keep up to date with the latest investment news
Subscribe to our newsletter today

Edison Investment Research
  • The Diverse Income Trust
    11 February 2016
    Positioned to navigate more difficult conditions
    The Diverse Income Trust (DIVI) is a UK equity income fund that is differentiated by investing across the market capitalisation spectrum. At 31 December...
  • JPMorgan Global Convertibles Income Fund
    10 February 2016
    Seeking opportunity in more difficult conditions
    JPMorgan Global Convertibles Income Fund (JGCI) is the only UK-listed fund investing in convertible bonds. It aims to produce income with the potential...
  • Martin Currie Global Portfolio Trust
    10 February 2016
    Growth focus allied with yield
    Martin Currie Global Portfolio Trust (MNP) invests in large-cap global equities, selected for their above-average growth potential and attractive valuation....
  • BB Biotech AG
    9 February 2016
    Sector specialist with high distribution policy
    BB Biotech (BION) seeks to achieve long-term capital growth by investing in fast-growing biotech companies. A discount management programme adopted in...
  • Deutsche Beteiligungs
    18 January 2016
    Continuing high level of investment activity
    Deutsche Beteiligungs (DBAG) reported results ahead of guidance for FY15 with NAV per share increasing 10%, driven by strong valuation gains for the carried...
  • The Brunner Investment Trust
    18 December 2015
    Actively seeking income and growth
    The Brunner Investment Trust (BUT) began life as a vehicle for managing the wealth of one of the founding families of ICI, a role it continues to fulfil,...
© 2016 Edison Investment Research.

View more research papers »

Today's Best Bank Rates
Co-operative Bank 3.35  
Based on a $50,000 deposit
More Rates »
Cash PIE Rates

Cash Funds

Institution Rate 33% 39%
ANZ 1.90    1.96    2.05
ASB Bank 1.40    -    -
ASB Bank 1.45    -    -
ASB Bank 1.50    -    -
ASB Bank 1.55    0.18    -
ASB Bank 1.60    -    -
BNZ 1.70    2.06    2.16
Direct Broking Call Account 2.80    2.92    3.05
Heartland Bank 2.85    3.22    3.37
Kiwibank 1.50    1.55    1.62
Kiwibank 2.50    2.59    2.70
Nelson Building Society 3.75    3.90    4.08
RaboDirect 2.25    2.33    2.71
SBS Bank 2.05    2.59    2.70
TSB Bank 2.65    2.54    2.47
Westpac 2.20    2.28    2.38
Westpac 0.10    0.10    0.11
Westpac 3.30    3.44    3.60

Term Funds

Institution Rate 33% 39%
ANZ Term Fund - 90 days 2.75    3.01    3.14
ANZ Term fund - 12 months 3.45    3.64    3.80
ANZ Term Fund - 120 days 3.20    3.29    3.45
ANZ Term fund - 6 months 3.30    3.48    3.64
ANZ Term Fund - 150 days 3.20    3.39    3.55
ANZ Term Fund - 9 months 3.30    3.53    3.69
ANZ Term Fund - 18 months 3.50    3.64    3.80
ANZ Term Fund - 2 years 3.60    3.69    3.85
ANZ Term Fund - 5 years 3.80    3.85    4.02
ASB Bank Term Fund - 90 days 2.90    2.97    3.10
ASB Bank Term Fund - 6 months 3.40    3.49    3.65
ASB Bank Term Fund - 12 months 3.55    3.70    3.86
ASB Bank Term Fund - 18 months 3.60    3.75    3.92
ASB Bank Term Fund - 2 years 3.65    3.81    3.98
ASB Bank Term Fund - 5 years 3.80    3.97    4.14
ASB Bank Term Fund - 9 months 3.40    3.54    3.70
BNZ Term PIE - 120 days 3.20    3.29    3.43
BNZ Term PIE - 150 days 3.20    3.29    3.43
BNZ Term PIE - 5 years 4.00    4.18    4.37
BNZ Term PIE - 2 years 3.60    3.91    4.09
BNZ Term PIE - 18 months 3.55    3.86    4.04
BNZ Term PIE - 12 months 3.50    3.81    3.98
BNZ Term PIE - 9 months 3.40    -    -
BNZ Term PIE - 6 months 3.30    -    -
BNZ Term PIE - 90 days 2.75    2.97    3.10
Co-operative Bank PIE Term Fund - 6 months 4.00    4.11    4.30
Heartland Bank Term Deposit PIE - 12 months 3.55    3.79    3.96
Kiwibank Term Deposit Fund - 90 days 3.10    3.17    3.32
Kiwibank Term Deposit Fund - 6 months 3.40    3.49    3.65
Kiwibank Term Deposit Fund - 12 months 3.60    3.70    3.86
Kiwibank Term Deposit Fund - 150 days 3.40    3.49    3.65
Kiwibank Term Deposit Fund - 120 days 3.30    3.38    3.53
RaboDirect Term Advantage Fund - 12 months 3.60    3.70    3.87
RaboDirect Term Advantage Fund - 6 months 3.45    3.55    3.71
RaboDirect Term Advantage Fund - 90 days 2.95    3.03    3.17
Westpac Term PIE Fund - 150 days 3.50    3.08    3.22
Westpac Term PIE Fund - 120 days 3.00    3.13    3.27
Westpac Term PIE Fund - 18 months 3.50    3.58    3.75
Westpac Term PIE Fund - 12 months 3.50    3.58    3.75
Westpac Term PIE Fund - 6 months 3.30    3.38    3.53
Westpac Term PIE Fund - 9 months 3.35    3.44    3.60
Westpac Term PIE Fund - 90 days 2.75    2.82    2.95
Westpac Term PIE Fund - 2 years 3.55    3.85    4.02
About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox
 
Site by Web Developer and eyelovedesign.com