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True Market Neutral Hardly Breaks A Sweat

Report: Systematic Strategies

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Stockholm (HedgeNordic) – SEB’s True Market Neutral fund, a fund of funds investing in a selection of equity market neutral hedge funds, returned 0.09% net-of-fees in August, after generating 0.31% in July and 0.58% in June. Despite enjoying three consecutive months of positive performance, the disappointing results experienced in April (-0.68%) and May (-0.96%) have put the fund at risk for its first year of negative returns since inception (the fund’s SEK class was launched on April 1, 2009).

Out of 12 underlying hedge fund managers, seven delivered positive returns in August. The best performing manager, a fundamental UK specialist, was up 3.2%. The manager’s performance was mainly attributable to its short position in a British sub-prime lender, which continued to deliver gains after the firm issued a second profit warning in two months, cancelled its dividend, and revealed the departure of its chief executive.

The second-biggest contributor to the fund of hedge fund’s performance was one of its quantitative multi-strategy managers, which returned 1.5%. The manager enjoyed broad-based gains across sub-strategies and regions, with the sentiment-driven strategy exploiting news-flow signals serving as the strongest driver of returns.

On the other side of the spectrum, the performance was negatively impacted by a U.S. quantitative manager with a strong value tilt (returned a negative 3.9%). Growth-oriented stocks in the Russell 2000 index significantly outperformed value-focused counterparts in August, a 240-basis points gap that significantly hurt the manager’s performance.

The SEB True Market Neutral fund concentrates on pure alpha-generating market-neutral hedge fund managers and aims to provide an annualized return of 3-4 percentage points above the risk-free rate with no correlation to equity markets. Despite experiencing an underwhelming year in terms of performance, the fund has generated an annualized return of 2.97% since inception. This figure is not a long way off from its target. The OMRX Treasury Bill Index returned 0.4% over the same time span. Given its particularly low volatility of 0.52%, the fund is able to exhibit a decent Sharpe ratio of 1.65.

By the looks of it, the fund’s investors have enjoyed acceptable returns over the years despite being subject to a heavy fee burden. The annual management fee amounts to 1% and the performance fee to 10%; these charges are layered on top of fees paid to the individual hedge funds.


Picture (c) Lightspring—shutterstock

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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

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