The blended five-year performance of a basket of Amplify Investment Partners hedge funds proves that the inclusion of hedge funds in investment portfolios enhances returns, reduces risk, ultimately benefiting investor portfolios both pre- and post-retirement.

Marthinus van der Nest, head of Amplify, told the 2021 annual Meet the Managers conference that hedge funds provide for asymmetry of returns, or the ability to protect an investment on the downside but capture returns on the upside. “There is a common misconception that hedge funds only protect on the downside, which isn’t accurate,” Van der Nest said. “Access to tools such as short-selling, leveraging, and derivatives enables hedge funds to generate better risk-adjusted returns than long-only funds and to produce positive returns in both up and down markets that are uncorrelated to those of other asset classes.”

The importance of including hedge fund investment has become clear in the past five years’ low return environment when equity performance has been poor. This is reflected in the All Share Index (ALSI), returning 8.23% per annum, while the blended performance of four Amplify hedge funds, over the same period, has reflected a return of 13.85% – from August 2016 until the end of February this year.

But Van der Nest warned that not all hedge funds are created equally.

“There are various hedge fund strategies and manager styles available to investors. These broad set of skills and offerings can be daunting to new investors and, without a proper understanding of how the strategies and styles work in various market conditions, can result in a negative perception of the alternative asset class as a whole.”

Amplify appoints who they believe are the most appropriate independent hedge fund managers to manage their mandates. In fixed income, Amplify chose four specialist managers – Marble Rock Asset Management, Terebinth Capital, Acumen Capital and Matrix Fund Managers – as it wanted a diverse range of strategies, with the funds generating returns and taking positions at different areas of the yield curve. “Different managers, when blended together, provide a more diversified portfolio and range of outcomes,” he said.

For Amplify, one of the significant advantages of hedge funds is the low correlation to traditional multi-asset portfolios. When included, it provides higher growth, lower drawdowns and an overall better risk/return profile.

“For clients in the last couple of years before retirement or those that are already in retirement, the last thing they can stomach is drawdowns. They are looking for real, smoother returns that ensure that their income in retirement isn’t going to be lower than expected,” Van der Nest said. “In an environment where you are getting poor returns from traditional asset classes, clients drawing an income from their investment could find themselves in a spiral of eating into their capital.”

As the local economy’s outlook is looking bleak, people think the possibility of a low return environment is here to stay. Coupled with globally high equity markets, many investors ask what if there is a downside from these levels. “This is where the benefit of hedge funds and low correlated returns comes to the benefit of investors, protecting clients when markets are under pressure whilst still providing positive returns should they continue to reach new highs.”

For Amplify, investing in hedge funds is critical as they:

• Provide a smoother return profile, protecting an investment on the downside whilst still capturing returns on the upside;
• Offer a broad range of strategies that are suited to various market conditions;
• Are an alternative asset class providing diversification and enhancing returns to traditional multi-asset portfolios; and
• Ensure lower volatility and greater investment longevity for investors drawing a regular income from their investments.

Amplify has seven distinct retail hedge funds managed by hand-picked experts specialising in multi-strategy, equity and fixed income.

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