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Hedge funds outperform ALSI by 6% in 2011, with significantly less volatility

The Blue Ink Composite (BIC), which tracks the performance of around 100 Hedge Funds in South Africa, recorded an 8.65% increase in 2011, outperforming the JSE All Share Total Return Index (ALSI) by more than 6%. This outperformance was achieved with significantly less volatility levels than the local equity market.
 

According to Eben Karsten, portfolio manager at Blue Ink Investments, Long-Short Conservative hedge funds on average recorded a 9.16% increase over 2011, after gaining 3.47% during the fourth quarter of 2011. Long-Short Aggressive hedge funds recorded a 8.96% increase for 2011, after gaining 5.71% during the fourth quarter. Long Short hedge funds were able to generate good returns with subdued risk during this period. Equity Market Neutral funds returned 5.62% on average over 2011, after gaining 2.73% during the fourth quarter.

Karsten says 2011 was a year that will be remembered as extremely volatile, and while the market gave investors positive returns, the return was not commensurate to the risks experienced by investors. He says that there is also no reason to believe that this volatility will disappear anytime soon. “The 12 month volatility (standard deviation) of the ALSI was more than 12%. This is in comparison to the BIC, which reported volatility of just over 2% during the same period.”

Karsten says that the extreme volatility levels of global stock markets recorded during throughout 2011 has highlighted the diversification benefits that local hedge funds and other alternative asset classes can bring to an investment portfolio. These asset classes can offer a degree of protection in times of market turbulence and have once again managed to protect investor capital in volatile markets.”

Returns from Hedge Funds, JSE All Share Index, and Cash to 31 December 2011
	Hedge Funds	JSE All Share Index	Cash
3 months total return to 31 December 2011	3.73%	8.35%	1.39%
1 year total return to 31 December 2011	8.65% (2.09%)	2.54% (12.13%)	5.75% (0.05%)
3 year total return to 31 December 2011	38.28% (2.11%)	61.21% (17.49%)	23.39% (0.46%)
* Volatility in brackets

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