There's no time like the present for a hedged approach to the equity markets, according to Robert Worthington, who oversees management of the $300 million Hatteras Alpha Hedged Strategies Fund Ticker:(ALPHX).
“Right now the economic environment is poor, the economy is rolling over, and that's not good for equities,” said Mr. Worthington, president of Hatteras Funds, which has $2 billion under management.
“If you lose less you don't have to make up as much,” he added.
The Hatteras Alpha Hedged Strategies Fund, which is managed on a day-to-day basis by Mike Hennen and Bob Murphy, has moved into a defensive position to avoid some of the volatile market beta.
The fund allocates assets to 20 underlying managers that spread their respective slices among various alternative strategies.
The overall strategic portfolio weightings are managed by Mr. Worthington and his team.
Currently the fund has a 34% weighting in long/short equity, which has a 36% net long exposure.
While the fund is benchmarked to the HFRI Fund of Funds Composite Index, it is designed to generate just 30% of the downside of the S&P 500.
The most recent example of the strategy at work was a six-week stretch between April and mid-June during which the S&P fell by 7%, but the fund was down just 1.4%.
Through July, the fund is up 2.9% this year, while the
hedge fund benchmark is down 2.2%.
The S&P gained 2.7% over the same period.
Mr. Worthington said the allocation to long/short equity had been built up over the past few months, based on a gloomy macroeconomic outlook.
“We were looking at the debt overhang in developed countries, slow growth in economies and a strong two-year run-up for equities, so we think less beta exposure is prudent today,” he said. “We're more cautious today than we were 15 months ago, but we still understand we have to make money for our clients, so we're not just sitting in cash.”
Hatteras has been managing the Alpha Hedged fund since it acquired Alternative Investment Partners LLC in July 2009.
The fund also has a 26% allocation to relative-value/long-short debt, 22% in event-driven, and 15% in market-neutral equity.
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