The BlackRock fund, which in the year to February has returned 48.77 per cent before fees, has a larger universe that includes foreign exchange, commodities, bonds and equities and also looks to take into account the importance of market momentum. “Traditional asset allocation would fight market momentum, we don’t want to do that, we are happy to play with the market,” he says. “Markets can go places you don’t think they can go, and we have respect for that. There are some good opportunities in the equities versus bonds space but if that’s the only quiver for your bow in times like now it is very difficult.”

The Blackrock fund takes the best investment views from the global funds management team and filters that together with whatever is working in the market at any one point in time. “Because this fund has concentrated risk we want to go with market momentum. We miss the turning point quite deliberately because we think we will have momentum going strongly the other way once it turns. Traditional TAA, trading off equities and bonds, tries to pick the turn,” he says. “We exploit those trends in a systematic way without putting all our money in, for example, bonds. In the past few years we have had risk in foreign exchange, commodities, and yield curves.”

Hudson says in recent times there have been a number of very clear market momentums: soft commodities, gold’s two big years; equity versus credit; steepening of the yield curve; downward pressure on the US dollar. BlackRock’s risk positions come in two halves: three directional risk strategies which are equity versus cash, bond versus cash, and commodity versus cash. Then there are six relative value strategies: equity versus equity, equity versus bond, equity versus commodity, bond versus bond, foreign exchange, and foreign exchange versus commodity.

And while the identified themes are quite long lasting, for example the yield curve steepening view has been that way for about 18 months, management of those positions is dynamic with daily active trading.

New ways to find and exploit risk

While short term fluctuations do affect returns, volatility also creates opportunity. In a business sense this has certainly been the case for Apostle Asset Management, which amongst other represents the US-based hedge fund-of-funds manager, Harris Alternatives, in the Australian marketplace.

Apostle’s investment director, Debbie Alliston, says that by the time $50 million in commitments outstanding at presstime is drawn down, Harris’ Australian clients will have topped up their existing investments to the tune of $280 million since the start of December. Harris’ two products offered here, a multi-strategy hedge fund-of-funds with 55 underlying managers, and a newer vehicle with 32 long/short managers, now run over $1.8 billion sourced from Australia with REST, Cbus, CARE Super and JANA’s implemented consulting arm the biggest clients.