Looks who’s making a return trip to the news after being largely tossed away by the media last year. It’s alternative beta and 130/30. As regular readers will recall, these hedge fund relatives seems to have died off last fall. But this week, several firms announced new funds aimed at resurrecting interest in “hedge fund replication” and “short-extension” strategies. And who knows, the time may now be right for these quasi-hedge fund instruments.
Clones or Zombies Back from the Dead
Hedge Funds Review reported today that Invesco, the mutual fund giant, launched an alternative beta strategy called “Premia Plus” (not to be confused with Premium Plus, the perfectly flaky cracker from Kraft). Without calling itself a “hedge fund” (now a four letter word in the post-12/11 environment), the company borrows heavily from the hedge fund lexicon. According to Hedge Funds Review, Invesco says it has developed a proprietary risk management strategy that “could generate equity-like returns with bond-like risk.”
The magazine also reports that Invesco is emphasizing many of the now de rigueur qualities of liquidity, low price and “transparency”. (Although we wonder how useful “transparency” really is when the product still uses a “proprietary risk management and rebalancing technique”).
Not content to let Premia Plus steal the headlines, Barclays Capital just launched the “Barclays Alternatives Replication” Index last week. The index comes in long and short versions called LBAR and SBAR (much like Innocap’s products and T-Rex offered by Socgen). Barclays says that LBAR tracked the HFRI better than “four main competing hedge fund indexes” last year. This statement is a refreshing change in a field where companies often seem to compete on the basis of performance, not tracking error.
Why the reincarnated interest in hedge fund replication? According to Reuters:
“…poor performance of actively managed hedge funds, and their decision to block redemptions at the end of last year, has encouraged investors to take a close look…Demand for the funds took off in September and October, according to replication-fund executives…”
Short-Extension: No crock
Like alternative beta products, short-extension funds also us hedge-like strategies, but with more liquidity and transparency – in this case the liquidity and transparency of a traditional long-only fund.
Keeping wit the theme of, um, innovative names for new products, Deutsche Bank announced the launch of its “CROCI” 130/30 product today after, what can only be assumed to have been a protracted copyright infringement suit from the makers of “Looks who’s back from the dead – assuming the worldly form of a viable investment strategy. It’s alternative beta and 130/30 strategies. As regular readers will recall, these hedge fund relatives seems to have died off last fall. But this week, several firms announced new funds aimed at resurrecting interest in Crocs, the goofy-looking plastic sandals).
Joking aside, DB managed to raise 90 million Euros last week to kick-start the “Cash Return on Cash Invested” product. Said the firm:
“Many funds in the equity sector have seen significant outflows recently so we are particularly pleased to have attracted EUR 90 mn of investment into the DB Platinum IV CROCI Global 130/30 Fund so quickly.”
The fund tracks an index that represents a 130/30 version of the firm’s proprietary CROCI stock-selection methodology. So in many ways, it sound similar to the 130/30 “indexes” from S&P and Credit Suisse, both of which are simply short-extensions of existing multifactor models used by those firms (see related posts).
Despite a pretty abysmal year for 130/30 products, JP Morgan, UBS and others remain bullish on short-extension strategies. In a recent article in Professional Adviser, a UK-based publication, the head of JP Morgan’s UK retail business said:
“I think there has been far too much short term analysis on performance…It is dangerous to write off 130/30 at such an early stage. We are absolutely sticking by the products, we are backing the fund managers in place and are behind the process across the whole cycle.”
Cartesian Capital might disagree – arguing that recent short term perofrmance is a wonderful indication of product quality. That firm’s UK 130/30 fund was ranked 9 out of 455 funds by Lipper earlier today according to HedgeWeek. Now that’s no crock.