Stock-picking hedge funds stand out in June

Stock-picking hedge funds stand out in June

Prominent hedge fund managers, whose business is picking the best and worst stocks to invest in, posted gains in June amid the sell-off in global markets.

Blue-chip managers Lansdowne Partners, Egerton Capital, Odey Asset Management, Chilton Investment Company and Horseman Capital Management were among the stock-pickers that made money last month, with many of them profiting from positions in their short book.

A partner at one of the 10 biggest hedge funds in London said: “Managers who are focusing on stock selection seem to be doing pretty well. You’re starting to get good dispersion between stocks.

“Those who use indices to short generally underperformed bottom-up stock-pickers.”

All major global indices sold off in the month as Ben Bernanke, chairman of the Federal Reserve, indicated that quantitative easing may come to an end. The S&P 500 lost 1.5%; the FTSE 100 index was down 5.6%; the MSCI emerging markets index lost 6.8%; and the MSCI world index dropped 2.6%.

The average hedge fund is up 7.32% this year to the end of May, according to data provider Hedge Fund Research, which is yet to publish figures for June.

Hedge funds have underperformed the S&P 500 index for the past four consecutive years and during the first five months of this year, according to Hedge Fund Research.

A prime broker said that capital protection and outperformance from some long/short equity funds during June’s volatility and market losses underlines the argument for paying higher fees to invest in a long/short fund rather than a long-only strategy.

Long/short equity managers argue that while they may lag rising markets, they tend to offer greater capital protection in downward markets, and lower volatility.

The Lansdowne Developed Markets Fund, which is run by Pete Davies and Stuart Roden at Lansdowne Partners, gained 3.95% in June and is up 17.38% this year, a spokesman for Lansdowne confirmed. Gains came from shorting stock, according to an investor.

Horseman Capital Management’s Horseman Global Fund, which manages about $120m and is run by Russell Clark, gained 3.79% in June and is up 16.8% this year, according to a spokesman for the firm. Gains in June came from short positions in metals and mining stocks, and in emerging markets financials, he said.

Odey Asset Management’s CF Odey Absolute Return fund, which is run by James Hanbury, gained 1.13% in June and is up 23.83% in the first six months of the year, according to an investor. Gains came from short positions in equities and bonds, Hanbury said.

John Armitage’s $5.2bn Egerton European Dollar fund gained 0.14% in June and is up 14.65% this year, a spokesman for Egerton confirmed.
Chilton’s $190m European long/short fund, run by Frederic Gautier, was up 0.05% in June and has gained 10.5% this year, a spokesman for Chilton confirmed. The fund’s long positions outperformed the market by 250 basis points during the month, while the shorts were roughly in line with the market, he said.

Managed futures strategies, which use computer algorithms to capture trends in global markets, were some of the worst hit in June, as both risk assets and bonds sold off. The Newedge CTA Index lost 1.49% in June.

Within managed futures, there was big dispersion among managers.

The Winton Futures Fund lost 1.77% in June but is up 4.5% this year, a spokesman for the firm confirmed. Meanwhile Cantab Capital Partners’ flagship quantitative fund lost 14.23% in June and has dropped 18.9% in the first six months of this year, a spokeswoman for the firm confirmed. BlueCrest Capital Management’s BlueTrend fund, which is run by Leda Braga, lost 9.48% in June and is down 10.44% this year, a spokesman confirmed.

A person familiar with Winton said that the fund is likely to have outperformed due to its lower target volatility, its slower trading systems and the bigger weighting the fund gives to equities. Cash equities account for 15% of the risk in the Winton Futures Fund and the firm is increasing this to a fifth, the person said. While Winton targets 10% volatility each year, BlueTrend’s target annualised volatility is 15-20% and Cantab’s fund targets 20% volatility. A lower target volatility means that Winton is likely to underperform its peers on the way up but outperform them on the way down, the person said.