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Investing in share market alternatives

Besides shares, there are a number of different investments to choose from on ASX. In this article we look at alternative investment funds and how they aim to generate returns for investors regardless of market conditions.

Alternative investment funds, like hedge funds, continue to grow in popularity, so much so that alternative funds are now the fastest growing investment products in the world, with over $1 trillion invested globally.

However, until recently, many funds were not accessible to the average investor, with some fund managers only accepting investments greater than $50,000.

Many funds have since reduced the minimum investment levels, while those that are listed on ASX generally have no minimum entry – so you can invest within your comfort zone.

What are Alternative Investments?

Although these funds can be quite complex at times, what is common among all of them is that they seek to provide consistent annual positive returns. Fund managers generally aim to produce returns in both rising and falling markets through the use of a broad range of securities and investment techniques.

Returns tend to be independent from movements in other asset classes. For example, when shares fall, alternative funds aim to continue to produce positive returns, making them effective for reducing portfolio risk.

Alternative investment funds are structured using a diversity of strategies, covering different investor risk profiles - from conservative through to aggressive.

Depending on the investment strategy employed, investors may receive returns in the form of income, capital appreciation, or a combination of both.

Alternative Investments listed on ASX

There are currently six alternative investment funds listed on ASX, including Pengana Managers, GoldLink IncomePlus, GoldLink GrowthPlus, Everest Babcock & Brown, Trojan Equity and Wallace Absolute Return fund.

Unlike their unlisted counterparts, these funds provide an additional level of transparency, supervision, and access – just like shares. Investors in some unlisted funds on the other hand, may be locked into their investments for up to six months.

Listed funds allow investors to exit their investment immediately and receive their funds within three days. Investors can also check the price of their investments throughout normal ASX trading hours, just like shares.

What’s new?

Cadence Capital is a new fund seeking to list on ASX. Cadence is aiming to achieve a high real rate of return, comprising both income (fully franked dividends) and capital growth on an absolute return basis. For more information or to download the prospectus go to the Cadence Capital website.

How do I find out more?

The ASX website is a good place to start to learn more about the basics of hedge funds and other alternative investments. The website hosts a large amount of useful information including a booklet produced by funds rating agency ASSIRT and the Alternative Investment Management Association (AIMA) detailing the different strategies employed and how alternative investments can be included into an investment portfolio. 

Aegis Equities Research has also recently published their Listed Managed Investments Quarterly for February 2005, which includes an analysis of some of the listed funds mentioned below.

Currently listed alternative funds on ASX

Company name Code Investment approach
Pengana Managers PGN Invests in new or recently formed hedge fund managers (hedge fund-of-fund)
GoldLink IncomePlus GLI Captures arbitrage opportunities from yield curves in interest rate and commodity markets (primarily gold) to produce income.
GoldLink GrowthPlus GLC Captures arbitrage opportunities from yield curves in interest rate and commodity markets (primarily gold) to produce capital growth.
Trojan Equity TJN Invests in undervalued asset situations, combining short selling and arbitrage when appropriate.
Everest Babcock & Brown EBB Provides exposure to a portfolio of international absolute return funds plus a shareholding in Everest Capital
Wallace Absolute Return WAB Identifies mis-priced securities and take advantage of relative under or over performance

© All rights reserved 2005. This material is educational and it is not intended to constitute financial advice.

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