Hedge funds seen as less of a threat

Traditional fund management companies view hedge funds as less of a competitive threat than they did a year ago according to the latest Morningstar European Fund Trends survey.

Morningstar.co.uk Editors 29 June, 2005 | 5:33PM
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Whereas in June 2004 almost three quarters of managers surveyed said the increasing number of hedge funds would be taking market share from traditional funds this year the proportion fell to about half.

This shift in sentiment could be partially explained by traditional fund managers’ own move into hedge funds. Over half already offered in-house hedge funds. Some 64% were planning to launch their own hedge funds in the next year, up from 50% in June 2004. Funds of hedge funds have also gained the attention of fund groups with 71% planning to launch these products within the next year.

The cost of hedge funds is an issue that di

vided survey participants. About a fifth said that investors pay too much to hedge fund managers. A further 39% were doubtful that investors were sufficiently rewarded to justify the performance fees and higher annual management charges often associated with hedge funds.

On average fund managers said that a normal long term investor should allocate 9% of their portfolio assets to hedge fund managers.

Equity outlook

Overall equity funds are expected to dominate launches and all managers surveyed expected shares to produce positive returns over the coming year. Almost 60% said they expected the MSCI World Index to rise 5-10%. A quarter said 0-5% while the remainder expected 10% or higher returns.

Meanwhile June’s survey saw a sharp increase in the managers’ outlook for growth companies. Some 53% said they would be the best performing over the next 12 months, up from 40% in May. Only 13% favoured the prospects for value shares. In terms of investment style size about three quarters of managers said large capitalisation companies would outperform their smaller counterparts over the coming year.

The yen was chosen as the top currency by 41%. In May the dollar and yen tied for first place. This month only 22% said the American currency would be the strongest currency while 44% said it would be the weakest. Managers were also split over the direction of the euro in the next 12 months. Some 35% said it would be the best performing while 33% said the worst.

Morningstar’s European offices conducted the survey from June 13th-20th. Some 38 fund groups from 12 countries participated. On average they each managed €57illion (£36 billion) and offered 102 retail funds.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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