Focus on hedge funds – Credit strategies find favour, and good returns

Investment gains from listed hedge funds focused on credit have comfortably outpaced those from listed peers concentrating on other asset classes, as flexible investment approaches to corporate bonds are favoured in a climate of dizzying prices.

The listed alternatives research team at Dexion Capital noted in an analyst report: “Performance so far this year has been superior in funds with mainly credit, and to some extent also volatility, strategies.”

Listed credit hedge funds run by single managers have also beaten the average from the unlisted hedge fund universe, according to figures from Dexion Capital and Hedge Fund Research.

By the end of August, the net asset value of CQS Diversified rose by 7.7% (USD shares). The portfolio manager had slightly increased the asset-backed securities and credit long/short strategy exposures in June.

Boussard & Gavaudan’s multi-strategy European fund (Euro shares) made investment gains of 6.9%, and took the greatest proportion (2.9%) of this from its credit strategies.

Brevan Howard Credit Catalysts’ NAV was up 9.2% (USD shares).

BlueCrest Capital Management told an investor call for its listed AllBlue Ltd fund of inhouse funds last week that about 103bps of 499bps of performance had come from BlueCrest Credit, marking the second best contribution.

US corporate credit trades had proved profitable, while short-bias trades detracted, and credit had a 16% to 16.5% weighting from AllBlue this year, said fund analysts at Jefferies International.

Of the three portfolios of Credit Catalysts, B&G and CQS Diversified  Dexion said: “Performance held-up in the second quarter after strong first quarters, and the positive momentum has been maintained in July and August. Obtaining double digit returns for the year would be an important milestone, especially as the similar promise of performance in the first half of 2011 had dissipated by year-end.”

The average hedge fund made 3.5% by August, according to the HFR Fund Weighted Composite index.

The average listed single hedge fund made 5.3%.

The JPM Global Aggregate Bonds index made 3.3%.

Credit hedge funds have not sat still, and some have boosted teams.

Brevan Howard’s Credit Catalysts fund, for example, hired its first agency mortgage-backed securities trader in July, and sees much of fund performance being driven by MBS more widely, Dexion Capital’s research team said.

“The less risky part of the MBS universe has been re-rated this year as investors have broadened their exposures in the search for yield. The managers, however, continue to find opportunities in more credit-sensitive securities.”

Investing in Brevan Howard’s Credit Catalysts this year to August was a better choice for investment gains than either of the firm’s older BH Global or BH Macro funds, whose NAVs rose 1.4% and fell 0.6% respectively (euro shares).



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