Editor’s Letter – February 2013

Issue 83

Originally published in the February 2013 issue

The universe of UCITS hedge funds is growing in diversity and quality, as our UCITS Hedge award winners demonstrate. In some cases, UCITS vehicles are now master funds or flagship funds, and plenty of them delivered high single digit, or double digit, returns last year; the UCITS Value at Risk ceiling is in fact far in excess of most hedge funds’ self- imposed limits. Ten of the twenty winners are profiled in this issue, with the other ten appearing in the March issue.

In equity long short, Japan veterans Arcus continue to generate strong returns from their value oriented stock-picking in a Luxembourg fund with a 14 year track record. The CF Odey UK Absolute Return Fund has generated high returns from the manager's high conviction positioning. The Absolute Insight team have been adept at selecting profitable pair trades, mainly in UK equities, and this fund has a higher risk target than its offshore sister. In US equities, RWC are excited that lower correlations among equities are improving the opportunity set for stock selection. While GAM Star Global Selector takes a long term, contrarian value approach to global equity markets, and currently identifies the best opportunities in US financials.

Credit funds such as BCM’s Duemme Euro Investment made strong returns almost entirely from investment grade credit last year. Cheyne’s Global Credit is of the opinion that investment grade corporate credit remains an undervalued asset class. Meanwhile Byron Fixed Income Alpha Fund offers institutional investors a competitive fee structure of 0.5% management and 5% performance.

In event investing some of the most experienced managers now offer a UCITS format. Castlerigg Merger Arbitrage UCITS Fund focuses on equities, while MS PSAM Global Event UCITS Fund also has some credit exposure, and sits on Morgan Stanleys’ FundLogic platform.

Emerging markets equity, credit and macro strategies can all now be accessed via UCITS. The Montlake Skyline fund is significantly outperforming emerging market equity indices, despite running only moderate net long exposure. Absolute Insight’s Emerging Market Debt Fund is also providing better risk adjusted returns than indices, thanks to its best ideas philosophy. Brevan Howard’s Emerging Markets Local Fixed Income Fund has a distinctive style and return profile, separate from the Brevan Howard Emerging Markets Fund.

In the macro space Ignis are applying their proprietary forward rate analytics to identify uncorrelated opportunities mainly in government bond markets. GAM Star Discretionary FX utilises the economic acumen of their macro team, while GAM Star Keynes Quantitative Strategies fund trades macro using systematic models. The STAY-C product has outpaced traditional commodity indices by a large margin, due to its algorithmic selection of commodity markets and by sometimes tactically holding cash. CCR continues to deliver steady returns, from a wide variety of volatility arbitrage strategies.

Investors seeking multi-manager solutions also have some fine products to choose from. Early UCITS adopters Kairos continue to produce steady returns, which are improved by their ability to negotiate fee discounts. The Lyxor Credit Strategies Index fund offers investors diversified exposure to 13 managers across 5 strategies: global macro, long/short credit arbitrage, event driven, convertible arbitrage, and fixed income arbitrage. Lyxor is totally transparent about who the managers are, which is one example of how UCITS is bringing glasnost to the hedge fund world.