Current market volatility has exposed a perfect time for wealth advisers to ramp up their clients’ asset allocation into hedge funds, a top HSBC executive said.
“There is a degree of fear and anticipation that the world has come to an end as far as hedge funds are concerned,” HSBC global head of sales and marketing in the alternative investment group Patrick Tuohy told InvestorDaily.
But in-fact it is an ideal time for advisers to invest in them, as contrary to perception, hedge funds are less volatile than stocks, he said.
Choosing the right amount to allocate to hedge funds in a portfolio is difficult, but he said 20 to 30 per cent is logical, where as five per cent is too little.
“The problem from a private client perspective is that if they do invest in hedge funds, they are expecting something sort of super-turbo, blue steel and highly charged,” he said.
“[But] they have delivered market returns with bond like volatility.”
Hedge funds are less volatile because their managers are good at identifying trends and then going long or short, Tuohy said. For example, hedge funds cash in by going short on financial stocks such as banks.
The S&P/ASX 200 financials index has tumbled 21.16 per cent since the start of the year.
“The opportunity set [in Australia] is quite healthy at the moment for hedge funds,” Tuohy said.
“Leading through the minefield of which hedge fund to invest in is the challenge.”
Tuohy said a good idea for advisers is to either go with the long-established funds from big firms or choose a fund of funds approach.
