easier.com – Standard & Poor\u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u201e\u00a2s Fund Services has issued a warning to investors in funds-of-hedge-funds based on its latest research on the sector.<\/p>\n
\u00c3\u00a2\u00e2\u201a\u00ac\u00c5\u201cInvestors may need to think carefully about market conditions despite hedge funds\u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u201e\u00a2 general aim for absolute returns at all times,\u00c3\u00a2\u00e2\u201a\u00ac\u00c2\u009d said Standard & Poor\u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u201e\u00a2s fund analyst Randal Goldsmith, \u00c3\u00a2\u00e2\u201a\u00ac\u00c5\u201cInaddition to remaining alert as to what might cause a market correction, it may also be important to take a look at whether funds are showing more correlation over time and whether their portfoliosare taking more exposure to equity long-short and macro compared with arbitrage and fixed income related strategies.\u00c3\u00a2\u00e2\u201a\u00ac\u00c2\u009d<\/p>\n
Goldsmith explained that funds-of-hedge-funds generally implement asset allocation changes more slowly than conventional, long-only funds, due to such things as redemption notice periods andlock-ups, noting \u00c3\u00a2\u00e2\u201a\u00ac\u00c5\u201cSo if a fund-of-hedge funds participates in equity market rallies, it is likely to suffer in a sudden correction.\u00c3\u00a2\u00e2\u201a\u00ac\u00c2\u009d<\/p>\n
An unexpected development during the most recent correction was that many fund-of-hedge funds actually fell more than related equity indices. Reasons for this included a general overweighting ofsmall- and mid-cap stocks versus large-caps, exposure to commodities and to emerging market equities. Said Goldsmith \u00c3\u00a2\u00e2\u201a\u00ac\u00c5\u201cInvestors might have been upset by the returns provided by many fund-of-hedgefunds, claiming to be independent of market direction.\u00c3\u00a2\u00e2\u201a\u00ac\u00c2\u009d<\/p>\n