Hedge Clippings | Friday, 21 January 2022
Continuing last week's theme of looking forward, looking back, below is an analysis of the performance over 1, 3 and 5 years of strategies (as opposed to Peer Groups) included on the FundMonitors.com database, including the average performance of the Top 10 Funds in each.
*Strategy group has approximately 10 funds
What is not shown in the table is the underlying data for individual managers and funds involved - which can be found via this link to the Index pages/Strategy. As one would expect, the range of individual fund's performance is wide - not only across strategy but within each one.
As always we'd advise caution and careful research - consistency of performance (not to mention downside risk) is critical, as is diversification across both strategy and asset class, particularly given the performance of equity markets over the past three, and to a lesser extent, five years. And while the US market (as measured by the S&P500) has significantly outperformed the ASX200, it's also worth noting that in 2021 the S&P500 traded on a dividend yield of just 1.62%, compared with the ASX at just over 4%.
This yield difference has traditionally been the case, but it also indicates that the S&P500 might respond differently when interest rates rise. Even though this seems close to a forgone conclusion later in 2022, equity markets have only recently seemed to factor this in, with the S&P500 reaching new highs earlier this month, but now trading at levels from back in late August while the tech heavy NASDAQ is back to June 2021 levels.
It's yet to be seen if the market is only belatedly responding to inflation/interest rate concerns, or the threat of military action/war in Eastern Europe. If it's not the latter it probably should be as open hostilities - if they occur as seem increasingly likely - will certainly change the risk on/risk off balance.
In that case, refer again to paragraph three above: "Diversification across both strategy and asset class."
But diversification is all well and good provided all asset classes are correlated, as often occurs in extreme markets such as geo-political conflict. Private debt, private equity, and property (provided lowly geared) would seem logical. Less well known is Life Settlements (Laureola) which is completely uncorrelated to markets.
Finally Cryptocurrencies, last year's darling, but Bitcoin has declined 20% so far this year, taking other coins with it, and there's no history or track record of how crypto will respond in a high risk, highly correlated sell off unless it's a market neutral crypto strategy such as DAFM which while having only a short track record has yet to record a negative month in spite of the volatility of the underlying assets.
On reflection, looking back (by definition) is simple. Looking forward is a whole different matter!
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