Modest gains for global hedge funds in February, report reveals

News - Funds

Written by Ray Clancy

Friday, 05 March 2010 09:47

Global hedge funds posted small gains in February as many prominent managers steered clear of stocks and bet against Europe’s common currency, according to analysts.

The average hedge fund gained 0.34% last month and the modest increase helped offset tiny gains seen at the start of the year, leaving hedge fund industry returns flat for the first two months of 2010, they say in a report from Bank of America Merrill Lynch.

Hedge funds are not required to release their returns and so any indication of performance is closely followed. ‘Overall, hedge funds are still cautious on equities but appear to have returned to commodities,’ the analysts wrote, adding that hedge funds continue to buy energy and metals during the last week of February while also adding to their bearish position on the euro.

But investors are being urged to hold even more cash in their portfolios. According to Constellation Wealth Advisors, a firm that manages about £2.7 billion in assets for 150 wealthy clients, said the biggest portfolio management mistake they see these days is people holding too little cash.

‘This was a difficult market and scary for a lot of people. Some of the traditional strategies that they thought would protect them, didn’t,’ said co chief executive Jon Goldstein. ‘It was a stress test of unprecedented proportions and revealed a lot of poorly designed portfolio strategies,’ he added.

Investors have historically shied away from keeping cash in their portfolios because it does not build wealth and is vulnerable to inflation. Yet cash protects investors against sudden drops in the market, explained Goldstein.

He would not reveal the ideal percentage that should be held in cash but said that if a client’s only source of income is their portfolio and they spend 4% of their savings annually, they should keep 4 to 8% of their portfolio in cash.

But during 2008, multimillionaires saw the value of their portfolios plummet by an average of 24%, according to the most recent World Wealth Report published each year by CapGemini and Merrill Lynch

Some of that wealth recovered during the past year, but many investor accounts still remain below pre-crisis peaks.