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Short stories: selectors reveal their long/short equity fund picks

Short stories: selectors reveal their long/short equity fund picks

We hear from more selectors on the long/short equity managers they're backing now. Here's part one of the article in case you missed it.

France

Vania Mareuse, Bryan Garnier Asset Management

Since last year, investors’ risk tolerance has been slowly improving. Low returns from bonds and a better economic forecast in the US mean markets are likely to remain bullish.

Clients’ expectations, along with fears of volatility, highlight long/short equity as a good vehicle for managing wealth. Today we must find new ideas to protect and produce wealth in a global world where an event in any area can affect many stock exchanges.

We like strategies that combine a technical approach for the hedge with a fundamental view for stock selection such as Bryan Garnier Opportunités.

The technical side of this fund is systematic and was created on a mathematic model with no correlation to the fundamentals. We are also invested in the US long/short Madison Street Partners fund which has a strong long-term track record.

Chile

Andres Garcia, Corpbanca

Long/short funds offer a good opportunity at this time when investors are looking for value in companies with strong growth fundamentals, instead of the more expensive ones that could be affected by the high volatility in the markets.

These strategies can be favourable the global economy is recovering, so we are maintaining our preference for equity over fixed income, with a strong focus on developed markets.

These regions, particularly the US, could gain part of the ground lost during the last decade and, in this context, we prefer long/short equity funds that are predominantly US-focused.

Switzerland

David Saaty, GI Global Invest

The US is on track for recovery and Europe is likely to reach the turning point later in 2013. Markets will remain nervous and volatile, however. In the cycle we are definitively more on the long-only side rather than long/short.

We look for managers with a longer-term view who produce consistent returns, participate on the upside and withstand market corrections.

In global equity we favour: the M&G Global Dividend fund, run by Stuart Rhodes; and Invesco Perpetual Global Smaller Companies, run by Nick Mustoe.

In North America we like the JP Morgan Highbridge US Steep fund (team managed), and the Credit Suisse Equity USA Value fund managed by Gregor Trachsel.

For European investments we prefer the Fidelity European Larger Companies fund managed by Matthew Siddle, and the Franklin European Growth fund.

Singapore

Eric Mellor, International Financial Services

I am not entirely confident that we have seen an end to headline risk and I remain keenly focused on Europe as a potential source for further bad news later in the year.

I agree, however, that fundamentals may now be back in favour and as such, we have reviewed several long/short equity strategies over the past few weeks.

Whilst Q1 and one-year returns look impressive relative to CTAs and macro strategies, I am conscious that most long/short equity managers are predominately US-focused and maintain net long positions.

With low interests rates, high borrowing costs and price volatility looking set to continue I suspect we may see more high correlation/low dispersion in returns leading to further risk on/risk off behaviour.

With this in mind, many long/short managers may struggle in their search for alpha. In the retail space we favour Terance Chen’s JP Morgan fund and we also reviewed the BlackRock Emerging Markets Long/Short Equity fund, run by Jeff Shen and Rodolfo Martell, which could show potential given the current discount.

In addition, we favour the Odey UK Absolute Return fund run by James Hanbury, who has achieved considerable long-term success using synthetics to manage his long/short positions.

Spain

Manuel Yutaro Rubio, Allfunds Bank

For most investors, the question might be whether the headline risks have faded or not but actually company fundamentals are working very well.

Since last year, the dispersion across sectors and stocks has increased, boosting the chance to generate decent returns from good stock picking.

The last few weeks have been challenging for most equity investors as they have been affected by sharp movements across the markets.

Nevertheless, there’s been a winning alternative strategy during the last six months: equity long/short. This has profited both from the market but also from the dispersion across stocks.

The best performers showed a variable exposure towards the market, switching between market neutral and timely low net long exposure.

During recent weeks these funds, including the more long-biased ones, didn’t suffer at all because relative value strategies are independent of market movements.

Also it’s worth mentioning that some of the long-biased funds have negligible exposure towards emerging markets and higher exposure towards the US that has been more resilient. We split our strategy between market neutral and non-neutral funds, including long bias, variable bias or specific sector.

We have selected funds that are performing well using either quantitative techniques like the Old Mutual Global Equity Absolute Return or more fundamental ones like the Schroder GAIA Egerton, Cazenove UK Absolute Target or the BlackRock European Absolute Return.

Also the market neutral ones are performing very well such as MLIS Marshall Wace TOPS, Insight UK Equity Market Neutral or Kames UK Equity Absolute Return.

Hong Kong

Lee Chi Hao, Barclays

There is a natural bias for Asian hedge funds towards equity long/short strategies.

The largest Asia-dedicated fund is shy of US$2 billion, and that’s more of a long/short event-driven manager. Anything beyond that and you become the big elephant in the room, and in tough times, the exit is very small, and elephants can’t get out!

It’s not easy to single out a manager for Asia long/short. Even in the world of hedge funds, it’s hard to name 10 managers who are consistently making money on the short side.

This article originally appeared in the July/August issue of Citywire Global magazine

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