Hedge Fund Barometer Sees Shift In Sentiment Towards Commodities

by Carla Johnson, Investors Offshore.com

02 November 2004

Geneva-based hedge fund advisory firm Tara Capital last week released its quarterly hedge fund strategy barometer, which has shown investors tending to shy away from convertible arbitrage funds in favour of managed futures and commodity trading funds.

According to the barometer, sentiment has consistently shifted against convertible arbitrage strategies in recent times, due largely to a dip in implied volatility on longer term convertibles, which has resulted in “relatively significant losses” for many funds in this sector.

Noting a drop in the CBOE Volatility Index (which measures volatility in the equity markets) to the lowest level since 1997, John Lowry, CEO of Tara Capital, commented: “This reflects a complacency amongst investors, which is somewhat curious given the backdrop of concerns over growth rates and higher energy prices.”

Meanwhile, the barometer has recorded a noted shift in sentiment back towards Managed Futures funds and CTA (Commodity Trading Advisor) funds, with 44% of respondents stating that they plan to increase asset allocations in these sectors, contrasting sharply with the 6% who said the same in the last survey.

The barometer also found that Multi Strategy funds continue to be very popular, with many investors looking to increase exposure in these strategies.

Fixed Income strategies are also gaining strength, partly reflecting an increase in the number of available funds in this sector.

However, Tara Capital anticipates the popularity of Equity Market Neutral Funds will soon wane following three quarters of increased investor interest.

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