"Hedge Funds Outperform in Third Quarter"
Tuesday October 20, 11:50 am Eastern Time
Company Press Release
Hedge Funds Outperform in Third Quarter
Unfairly Maligned in Wake of Long Term Capital Management Losses
NASHVILLE, Tenn.--(BUSINESS WIRE)--Oct. 20, 1998--Hedge funds on
average substantially outperformed the S&P 500 and the Average Equity Mutual Fund during the highly volatile third quarter, contradicting current speculation that hedge funds are very high risk investments that investors should avoid, George P. Van, chairman of Van Hedge Fund Advisors International, Inc. (VAN), a leading hedge fund investment
advisory firm, said today.
''In the wake of recent losses incurred by hedge fund operator Long Term Capital Management (LTCM), hedge funds as a group have been unfairly maligned, with some commentators suggesting that investors should shun this group in favor of other, less risky investment alternatives,'' said Mr. Van. ''Nothing could be further from the truth. In fact, investors who followed this advice during the third quarter of this year, one of the most volatile in memory, would likely have experienced much greater risk and greater losses with the Average Equity Mutual Fund, or the average S&P index fund, than they would have had with the average hedge fund.
''Historically, the average hedge fund has been a much safer haven than either the S&P 500 or the Average Equity Mutual Fund,'' the hedge fund expert continued. ''During the past seven quarters in which the broad market experienced significant declines including the just-ended quarter, hedge funds as a group significantly outperformed the S&P 500 in all but one and the Average Equity Mutual Fund in every single quarter. The cumulative return for the S&P 500 during these quarters, for example, was -29.4% and for the Average Equity Mutual Fund was -35.1%. Contrast this with a cumulative return for the average U.S. hedge fund of -3.2%. That hedge funds are generally risk averse can be seen in the just-ended third quarter performance of the S&P 500 (-9.9%), the Average Equity Mutual Fund (-15.0%) and the average U.S. hedge fund (-6.1%). Would any reasonable investor consider this superior performance in a highly volatile market environment to be the result of high risk investment strategies? I would say not. In any large group of investment managers, there are going to be anomalies like LTCM. It is patently unfair to tar an entire population based on the actions of a few of its members.''
Mr. Van went on to say that ''It's also been suggested that hedge funds are dangerous operators that can move many markets and should therefore be restricted in their activities. This is incorrect. Admittedly, there are a few very large hedge funds, like those run by George Soros and Julian Robertson, that are so large and influential that they sometimes can affect movements in specific markets. However, the vast majority of hedge funds are dwarfed by the investment portfolios of large banks, brokerage houses, insurance companies and others who play the markets using investment strategies similar or identical to those employed by many hedge fund managers. The large institutions are a good deal more secretive about their actions and results, however, so they rarely make the headlines if specific strategies sour. Also, their missteps often are diluted and therefore masked by their other activities. The isolated and usually misunderstood hedge fund, on the other hand, is far more visible when its strategy becomes ineffective.
''As an example of the secondary role played by hedge funds in most markets, consider mortgage-backed securities hedge funds. Along with other organizations trading mortgage-backed securities, they have had a difficult time recently and have been much in the news. That their activities have had some impact on specific segments of the mortgage-backed securities market is not in dispute. However, we estimate that the total assets of mortgage-backed securities hedge funds, including leverage, could be as much as $30 to $40 billion. Contrasting this with the size of the overall mortgage-backed securities market of some $2 trillion helps put the situation into perspective,'' Mr. Van concluded.
For the third quarter, the following were the best performing hedge fund investment styles worldwide: U.S. Short Selling (+19.5%), Offshore Short Selling (+16.1%), Offshore Market Timing (+3.3%) and U.S. Market Timing (+2.8%).
Among sector specific hedge funds, U.S. Health Care sector hedge funds lost 2.0% on average during the third quarter, while U.S. Financial Services sector hedge funds lost 6.2%, U.S. Technology sector hedge funds lost 6.5% and U.S. Media/Communications sector hedge funds lost 18.2%.
Offshore Aggressive Growth (+8.2%), U.S. Aggressive Growth (+7.2%) and U.S. Value (+5.1%) led all other hedge fund investment styles during September.
Year-to-date, the best performing hedge fund investment styles worldwide were as follows: U.S. Market Timing (21.4%), U.S. Short Selling (+15.5%), U.S. Macro (+8.1%) and Offshore Short Selling (+8.1%).
For September, the third quarter and year-to-date through September 1998, hedge fund returns by investment style were as follows: (#reply-6102561)
Van Hedge Fund Advisors International, Inc. provides monthly hedge fund returns, as well as other hedge fund information, at www.vanhedge.com. A sister company maintains one of the largest data banks of hedge funds in the world, with over 4,000 hedge funds. The primary database contains detailed information on over 2,600 hedge funds (approximately 1,500 U.S. funds and 1,100 Offshore funds) that manage over $140 billion in assets; the secondary database contains basic information on approximately 1,400 funds. The company has obtained assistance from faculty of the Vanderbilt University Owen School of Management to help ensure the statistical validity of its hedge fund research.
A registered investment advisor, Nashville, Tenn.-based Van Hedge Fund Advisors International, Inc. introduces top-performing hedge funds to substantial investors in the U.S. and abroad.
(The Company's information on hedge funds is based on information received (and not audited or independently verified) from the hedge funds in its databases and may not be representative of all hedge funds. Different statistics may be based on different numbers of funds. Averages are not dollar-weighted. Past results are not necessarily indicative of future performance.)
Database Reference: Investments, Hedge, Funds, Finance, Mutual Funds, Futures, Derivatives, Stocks, Bonds, Currencies, Commodities, U.S. Hedge Funds, Offshore Hedge Funds, Market Neutral.
Contact:
Van Hedge Fund Advisors International, Nashville
George P. Van, 615/661-4748
e-mail: vhfai@vanhedge.com
vanhedge.com |
