Money News
Advisory firm Killik & Co believes the inclusion of funds of hedge funds in SIPP and ISA portfolios may help safeguard capital and reduce risk for retail investors. And it argues that the performance of the London listed funds of hedge funds sector should go some way towards altering the racy image that hedge funds are only for the wealthy elite, due to the minimum investments required.
Whilst direct investment in individual hedge funds is likely to continue being a riskier strategy with higher barriers to entry, the appeal of funds of hedge funds is that the risk is diluted; yet these funds can still produce absolute returns over time with less volatility than equities holding true to the traditional meaning of hedging being a way to protect against stock market falls.
Mick Gilligan, Director of Fund Research, at Killik & Co, makes the point that ISA and SIPP qualifying absolute return funds using hedging strategies, such as Close AllBlue, made a net asset value gain of 5% in Q1 2008 despite the FTSE falling 8% during the same period.
Many investors have built up significant nest eggs in tax shelters such as ISAs over the years but have been unable to hedge their market exposure as HMRC deems most hedge products to be ineligible for ISA inclusion. However, the emergence of a hedge fund sector on the London Stock Exchange and the wider hedging powers of unit trusts and OEICS, now offer real choice to the private investor.
Gilligan notes that while funds of hedge funds may not be appropriate for every investor, the ability to diversify risk beyond the traditional investment market has become more pressing, given stock market returns have been particularly volatile.
01 May 2008 © Moneyextra.com
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