10.28.2011

Emerging Markets Confused

10.28.2011
Terry Flanagan

The umbrella term for investing beyond the U.S. is favorable for passive, but not active, managers.

Several of hedge fund strategies that make plays investing globally have been burned this year. Global macro may ring a bell for many hedge fund managers—those who make bets on macroeconomic principles, such as long and short positions in various equity, fixed income, currency, and futures markets.

According to the Dow Jones Credit Suisse Core Hedge Fund Index, global macro is down nearly ten percent this year, due to the wild market gyrations witnessed in the markets, as a result of the state of the global geo- political and economic environment.

Another broad-based strategy, not unlike global macro, is the emerging markets. The strategy, which is an umbrella term for equity, debt, and other investments is the less developed markets, has not lost nearly as much as its global counterpart, global macro.

The strategy is down about three percent, according to the Dow Jones Credit Suisse Core Hedge Fund Index, year-to-date. Some market participants deem the emerging markets have escaped the fiscal woes, currently facing the developed markets.

Others feel a grip on good governance is flourishing in some emerging regions, such as Latin America, noted Anthony Scaramucci, managing partner at hedge fund Skybridge Capital. The firm has tentative plans to enter the Latin American markets in the near future, he said.

Perhaps the favorable demographics of the non-developed world are the primary driver behind the investor interest in the less developed regions.

“There is medium, to long term rise in the emerging markets in per capita income,” Nicholas Brooks, head of research at ETF Securities said, “China, especially, is driving demand for commodities while you have a finite supply.

However, other market participants are skeptical of the emerging markets’ sustained decent performance. Today’s market volatility has caused some investors to re-think going into the “unknown” markets, and instead, sticking to time-proven markets of little risk, but little returns.

“With lack of investor confidence, capital has flown out of emerging markets, and that has impacted on emerging market hedge funds, particularly in India, China and Russia,” said David Friedland, president of of Magnum Funds, a fund of hedge funds.

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