Emerging Hedge Fund Managers Look To China And Eastern Europe

by Philip Morton, Investors Offshore.com

26 January 2007

VanthedgePoint Group, Inc., an integrated financial services firm catering to emerging hedge funds, this week unveiled the results of its second annual Emerging Hedge Fund Manager Sentiment Survey.

According to VanthedgePoint, emerging hedge fund managers have indicated they are largely neutral on the US economy (57.4%) and the US equity markets (44.3%) for 2007. Approximately one-third are bullish on the economy (32.8%) and bullish on US equities (37.7%). They believe a continued real estate market slowdown (29.5%) and inflation (21.3%) will play the biggest role in how the US economy fares this year.

When asked where to invest in the US stock market, survey respondents predicted that Technology (41.0%), Financial Services (31.2%), Consumer Goods (26.2%), Food & Beverage (21.3%) and Defence (21.3%) will be the best performing sectors in 2007, and that Automotive (32.8%), Real Estate (27.9%), Energy (21.3%) and Home Building/Furnishing (21.3%) will be among the worst performers.

Among US equities, emerging hedge fund managers believe large cap stocks (36.7%) will perform the best in 2007, followed by small cap stocks (33.3%). Internationally, they expect China (34.4%) and Japan (34.4%) to be the top performers, along with Eastern Europe (23.0%). They also predict that Latin America (37.7%) and Russia (23.0%) will be the worst places to invest in 2007.

US equities (44.3%) are expected to be the best asset class of 2007, followed by International equities (31.2%), while sentiment about which asset class will perform the worst in 2007 was almost evenly split between Real estate (27.9%), High yield debt (24.6%) and Commodities (21.3%).

Over half of all survey respondents manage hedge funds with less than $10 million in assets under management, while over 85% currently manage less than $100 million. Over 90% are located in the US, and nearly one-third have both onshore and offshore vehicles for investors. In addition, emerging hedge fund managers indicated that the most difficult aspect of running a hedge fund business is raising capital/marketing (70%).

One notable finding was the significant increase in usage of index products among emerging hedge fund managers. Over 62% of respondents said they will use index products in their portfolio in 2007, and another 8% said they were considering using them. That compares with only 44% of respondents using index products in 2006.

VanthedgePoint said that its 2006 Emerging Hedge Fund Manager Sentiment Survey results turned out to be quite accurate. Last year, respondents predicted increasing energy costs and a real estate market slowdown, both of which slowed the US economy in 2006. They correctly predicted that Technology, Raw Materials, Financial Services and Defence would be among the top performing sectors in the US, and they narrowly missed the mark by indicating that China would be the best performing international market.

"The results of our second annual Emerging Hedge Fund Manager Sentiment Survey provide unique insight into the minds of emerging hedge fund managers," observed Geoffrey M. Tudisco, chief executive officer and founder of VanthedgePoint Group, Inc.

"Academic studies indicate that early-stage hedge funds tend to outperform larger funds, and our survey allows us to better understand these managers' point of view when it comes to making investment decisions," he added.

Recommended