Investors considering putting their money into hedge funds should seriously consider using ones that are diversified across a range of styles, AXA Global Structured Products managing director Barry Seeman says.
New York-based Seeman says because there are so many different styles and types of hedge funds the diversified approach is a good way to go.
The fund he currently runs uses 35 different funds and that is likely to grow to 50 next year.
Are investors going to understand the nuances of an individual hedge fund strategy? "Absolutely not," Seeman says.
"That's why you need a well diversified hedge fund portfolio."
Seeman says despite having a wide range of funds and styles there are some he would not use.
Also he does not believe the market neutral fund story.
"We do not adhere to the notion that things are market neutral. We think the term market neutrality is misused."
He says market neutral means there is a true disconnect from the movement of markets. However, every single strategy that a hedge fund implements sources its returns from the actual movement of the markets.
"They do have some component of market risk in their returns," he says.
"The beautiful thing about hedge funds is that if you add hedge funds to a traditional portfolio you actually enhance the risk return profile."
The problem is that what you don't see is where the returns comes from.
Because of this AXA employ a team of capital market experts to analyse the strategies used, how well they are implemented and the risks.
Seeman says that "no one strategy, nor no one fund represents all hedge funds."
"To create a stable asset within your portfolio you really need to look at all the different strategies and figure out the mix.
Because of this AXA is more like a researcher than a fund manager, he says.
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