Short-biased funds have struggled through 2009 as global equity markets have regained ground rapidly amidst anticipation of economic recovery. However, the outstanding performance of many short-biased funds through the worst months of the financial crisis, and strong performance during setbacks during the current bull rally continue to make the case for a slice of dedicated short investments within the context of larger portfolio.
Investors continue to look for protection against equity market moves and firms such as Connective Capital, have seen this in the form of additional allocations to their short biased strategy.
Earlier this month, Connective announced the launch of an offshore version of its 2-year old global short biased equity fund Connective Capital II (CCII). The offshore fund launched with a $5m allocation, no small feat as hedge funds still find the assetraising environment to be tight. The fund, which returned +89% to investors in 2008, has tracked with its benchmark through 2009 returning -38% YTD. However, performance during recent market setbacks, such as October 2009 (the S&P 500 lost 1.86% while CCII gained 12%) are proving to be strong reminders to investors of the benefits of such a volatility hedge.
The rising wall of fear in the market is driving interest in short strategies, Portfolio Manager Rob Romero told Opalesque. ??As the market continues to go up ?? people are making a lot of gains on the long side, but certainly the need to hedge is always there relative to potential global debt-induced downside in the equity markets.?
With approximately $90m in assets, Connective Capital focuses on technology and climate-change-related sectors, areas that the members of the silicon valley-based team have strong backgrounds in. As much hope for economic growth is pinned on these sectors the assets raised for development are likely to make this space even more volatile ?? a fact that the Connective team will look to exploit through both the CCII funds as well as its long-biased Emerging Energy Master Fund, which has gained +26%YTD.
In the energy area there is certainly long-term secular growth trends in terms of more power coming from alternative sources like wind, solar, and biofuels. But the economic challenges that the world faces mean there are some areas that will not grow as quickly as they otherwise might,? says Romero.
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