Opalesque Industry Update - Comment from Thomas Weber, Chief Investment Officer Hedge Funds, LGT Capital Partners and lead portfolio manager of Castle Alternative Invest (Castle AI):|
- 2011 presents an attractive environment for active hedge fund managers
- Castle AI has a core allocation to flexible and liquid strategies
- The portfolio is overweight CTA/macro managers to take advantage of the anticipated volatility and global market trends
- Key portfolio themes for 2011 include corporate activity, emerging markets, natural resources and sovereign risk
- Castle AI has outperformed equities since inception, with significantly lower volatility
2011 will continue to be a macro-driven, volatile investment environment which bodes well for active hedge fund managers.
Commentary: We believe that monetary stimulus will continue to drive markets over the next three to six months. As a consequence, we expect the economy will continue to follow a slow, uneven recovery path, and that low interest rates will suppress the negative side effects and long term damages of the intervention measures introduced during the crisis. Our risk scenario has changed from that of a double dip scenario to a classic boom scenario, which could lead central banks to start tightening early and surprise the markets.
Castle AI is overweight CTA and Macro strategies to take advantage of anticipated volatility and global market trends, while maintaining a liquid and flexible portfolio. Castle AI’s high exposure to CTA/macro managers (currently 32% of the portfolio) differentiates it from other large multi-manager alternative vehicles. This area produces returns with low correlation to traditional markets, and tends to deliver positive returns when capital markets are undergoing significant stress.
We have changed our underweight position in long/short equity to a normal weighting, as we expect equity markets to continue to develop positively in the next few months. We remain underweight relative value strategies as opportunities in these sectors are better exploited through macro directional strategies than through relative value spread strategies. Within event driven we are underweight mainly credit related strategies, but see opportunities in the equity related special situations sector.
Themes for 2011
In addition to being overweight flexible and liquid macro/cta strategies we are maintaining our four core investment themes:
- Corporate activity – post the financial crisis the winners have cash for acquisitions, and the losers need to restructure their balance sheets, creating opportunities for special situations and M&A hedge fund managers
- Emerging markets – the macro picture remains strong and managers should be able to profit from market volatility and security selection
- Natural resources – fuelled by strong global demand, loose monetary policy and constrained supply
- Sovereign risk sensitivity – liquid, active fixed/income rate and FX trading strategies have the ability to take advantage of situations such as the recent turmoil in Europe
Castle AI – strong track record continues
Castle AI has delivered a 7.0% annualised return since inception in 1997, with annualised volatility of 5.5%*. This compares to a return of 5.4% and volatility of 16.7% for the MSCI World Total Return Index (MSCI World), demonstrating the ability of a well diversified fund of hedge funds to deliver positive returns with reduced volatility.
Castle AI has also demonstrated lower volatility than bonds, annualised volatility of the JPM Global Government Bond Index (unhedged) stands at 7.1% since 1997, with a return of 6.0%.
About Castle AI
Fund of hedge funds, Castle AI, listed on the London Stock Exchange in June 2009, having been listed on the SIX Swiss Exchange since 1997. Its net asset value stands at USD 561 million (as at 30/11/10). The investment adviser is LGT Capital Partners and Thomas Weber has been lead portfolio manager since launch.
Castle AI invests in a diversified and actively managed portfolio of hedge funds, managed accounts and other investment vehicles.
About LGT Capital Partners
LGT Capital Partners is a leading alternative assets and fund of funds manager. The firm currently manages USD 20 billion in hedge fund and private equity investments globally and has a staff of over 160. Headquartered in Pfaeffikon (SZ), Switzerland, the firm also has offices in New York, London, Dublin, Hong Kong and Tokyo.
* Estimate to 31 December 2010