Bestinvest has downgraded several fund of hedge funds investment trusts in its latest review of the sector.
Simon Moore, the head of investment trust research at Bestinvest, downgraded the Alternative Investment Strategies, Dexion Absolute, Dexion Equity Alternative, Dexion Trading, and Thames River Hedge+ investment trusts, saying their performance had been “mediocre”.
Alternative Investment Strategies was downgraded from three to one star. Dexion Absolute was downgraded to one star from four stars. Dexion Equity Alternative was downgraded from three to two stars, while Thames River Hedge+ and Dexion Trading were downgraded to one star from three. (article continues below)
Dexion Absolute’s share price shed 4.6% over five years to November 24, Dexion Equity Alternative’s rose 0.4% and Dexion Trading’s 17.5%. Thames River Hedge+ shares fell 1.2%, while Alternative Investment Strategies decreased 21%.
All five trusts have posted positive three-year returns, but lost ground during the credit crisis over the previous two years.
Over the five years, none of the returns significantly exceeded the 17.2% posted by the 12-month London Inter-Bank Bid or deposit rate, a proxy for simply holding cash in a long-term savings account.
Moore says: “As a general rule funds of externally managed hedge funds do not have total transparency on all the underlying funds’ trades at all times. They may also have lock-in periods so the manager may not be able to switch out of funds or strategies at will. This can limit flexibility when strategies move in and out of favour.”
The Jupiter Second Split investment trust, managed by Philip Gibbs, was left unrated by the firm, having previously held three stars. Although FE Trustnet does not list the three or five-year performance of its packaged units, their net asset value has delivered steady returns of 7.8% over one year, 10.2% over three years and a gain through the credit crunch period through to 16% over five years.
Moore says: “We hold the manager in high regard and rate his Jupiter Absolute Return unit trust with four stars. However, it is inappropriate to rate the shares of a split capital investment trust, which has a fixed end date, with the same degree of confidence.”