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Alternative Viewpoints: Commodities not about “buy and hold”

29 June 2008

With so much interest in commodities, we thought this might be a good time to revisit the rationale for so-called “managed futures” funds. But as Keith Black, CAIA, of consultant Ennis Knupp + Associates says, commodity investing is about a lot more than buying and holding commodities in hopes that the Chinese continue to buy new cars.

The Case for Commodities

Special to AllAboutAlpha.com by: Keith Black, CFA, CAIA, Associate, Ennis Knupp + Associates

Over the last several years, institutional investors have more than doubled their allocation (to over $200 billion), to financial products whose returns are linked to those of commodity indices. Commodities may be attractive due to: the low correlation between their returns and those of other asset classes, the high correlation of commodities returns with unexpected inflation, and the rising demand for commodities from fast-growing emerging markets countries, such as China and India.

In fact, when you look at the performance of these commodity indices during the best and worst quarters for the Wilshire 5000 (and quintiles in between), you can see that they have produced modestly positive returns in almost all quintiles. In fact, the correlation between commodity indices and other major asset classes is generally below 0.2.  

Commodity Beta via Equities

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Busy week on the alpha-centric news beat

15 June 2008

State Street world’s largest again: According to Pensions & Investments, State Street Global Advisors is the world’s largest institutional manager for the 7th year in a row ($1.8 trillion AUM).   

“Best Blogs”: Speaking of P&I, we think they are one of the best.  Coincidentally, that’s exactly what they said about us in their recent ranking of “best blogs” (where they ranked us #9). 

Increased regs not in the cards for hedge funds: Morningstar says their database is “the closest hedge funds are going to come to oversight” in the near future. 

Seed capital providers now vital for funds: The FT reports that as assets get harder to raise, some are saying “seeders” are just about the only way to go for hedge fund start-ups.

Value Partners Says Smaller Hedge Funds Face Takeover: …and if smaller funds don’t have access to a sugar-daddy ”seeder”, guess what… 

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Alpha News Ticker

2 March 2008

We come across a lot of interesting news items each week.  In some cases, we see enough items on a particular theme write a posting on their common threads - what they say about the hedge fund industry, how they illustrate some alpha-centric investment strategy, or why they spell trouble (or success) for alternative investing. 

Whatever doesn’t make it into such a posting ends up in the “Alpha Ticker” above and in the news clipping archive (click “Alpha Newswire” above).  Last week, for example, the following articles caught our eye:

HFs Not Threatened By Clones (Euromoney II): “Hedge fund replicators for the most part are seen as complementing the real thing, not replacing it…”

Watson Wyatt reveals surge in scheme demand for alternative managers (Professional Pensions):  “The number of the UK’s biggest schemes selecting private equity, real estate and hedge fund managers reached record levels last year, Watson Wyatt data reveals…”

Hedge fund launches are clipped back (Financial Times): “Investors cooled towards new hedge funds last year, with cash put into European launches falling for the first time since the 2001 bear market…”

Report warns of hedge fund risks (Business Week): “Despite closer monitoring by regulators, hedge funds still pose significant risks to the financial system, a government report said Monday…”

Merrill Says Diversify With Bonds, Not Hedge Funds (HedgeWorld - free registration req’d.): “Today bonds, not hedge funds, represent the asset class least correlated to equities, according to new research from Merrill Lynch…” 

Alpha to introduce 130-30 real estate fund (HFM Week): “Alpha Equity Management, a $220m asset management firm focused on 130-30 strategies, is readying a 130-30 international real estate fund to launch this year…”

Funds paying over 50% more investment fees than five years ago (Watson Wyatt): “Pension funds around the world are paying on average 50 percent more in fees than they were five years ago…”

NYU Study Shows Currency Benchmark Beats Fund Managers (HedgeWorld - free registration req’d.): “A newly available study indicates that a collection of currency return indexes based on easily replicated currency strategies like carry, trend, value and volatility outperforms most currency fund managers…”  

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