The credit crisis has taken its toll on the performance of 130/30 funds-which have 130% exposure to long positions and 30% to shorts-but so far investors appear to be giving them the benefit of the doubt.
Most 130/30 funds available to UK investors enjoyed net inflows in the first three months of the year despite of negative returns over the period, according to analysis by Financial News.
A cross-section of UK funds offered by asset managers including JPMorgan, Resolution, Threadneedle and UBS disclosed that most of their UK 130/30 fund returns were negative in the first quarter, according to data provider Morningstar, and many underperformed the relevant equities benchmarks.
However, investors-including retail investors, who are notoriously wary of investing in funds reporting negative returns-still pushed assets into many of the vehicles.
JPMorgan Asset Management is ahead of the pack, with four 130/30 funds available in the UK and a fifth reportedly on the blocks. It distributes two European equities and two US equities funds.
Since the beginning of the year, its four funds have suffered negative returns, according to Morningstar, and one of its European funds has shrunk in size faster than their performance accounts for, suggesting net outflows.
However, its two US funds have not shrunk to the same extent as performance, suggesting net inflows.
Three of the funds have less than €9 million ($14 million). The fourth fund, the US Select 130/30 fund, has grown from $525 million (€340 million) at the beginning of the year to $892 million at the end of March. This is despite registering losses and underperforming its benchmark in January and March by almost five percentage points.
Threadneedle’s American Extended Alpha fund followed a similar pattern, underperforming the S&P 500 in January and March, but the fund more than tripled in size to 18 million (€23 million) over the first quarter.
Jonathan Price, a managing director on the US equities desk at JPMorgan Asset Management in London, says: “The fact that investors continue to put money into these strategies is due to the simple reason that the 130/30 tool has both a strong academic logic and practical implementation efficiency.”
Investors recognize that any investment process will give fluctuating returns over short term measured periods such as a single quarter.
Price says: “The bad performance from quantitative 130/30 strategies was nothing to do with the 130/30 tool and everything to do with the fact that the underlying processes of those managers involved were severely challenged by events.”