It’s a common misconception that hedge funds and private equity funds can only invest in big, established businesses.
There’s also a perception that they only invest on an ad-hoc basis.
But a new study by Invest New Zealand and The New Zealand Times shows hedge funds can also be the best investment for New Zealand.
“It’s a lot easier to identify who the best fund is and what kind of companies to buy than it is to go through a lot of the paperwork and find out exactly who’s invested in what,” said Andrew MacLennan, the co-founder of Invest New England and a leading fund manager for hedge funds.
The study also looked at the investment returns of hedge funds over the last five years.
It found that, in New England, fund managers have been able to consistently outperform index funds.
But the fund managers also have outperformed index funds on a range of asset classes.
For example, the fund manager who’s outperformed the S&P 500 index by nearly 60 per cent has also outperformed that index by an average of about 6.5 per cent over the past five years, The Times found.
Hedge funds have also outperrated the NZ stock market in the past.
In 2013, hedge funds managed to outperform the S/b/a index by roughly 4.8 per cent.
“There are a lot more hedge funds that are in the NZ equity market that are performing well than the stock market,” said MacLenny.
“But we’ve also had some good performers, and we’re happy with that.”
It’s no surprise that hedge fund managers outperform indexes over time.
Hedge fund managers are well-known for their ability to predict the future, as well as for investing heavily in emerging markets.
That has enabled them to build up large positions in a wide range of industries, such as financial services and technology.
The most popular investment in New York City is an equity fund called MFS Global Equity, which manages about $4.4 billion, or about $100 million a day.
It has more than doubled its value in the last 12 months.
“If you’re looking for something that can come back and take a big bite out of the market, it’s hedge funds,” said Steve Kowalczyk, an investment manager at Kowall Capital.
“That’s been the strength of hedge fund management for a long time.”
But what’s the best way to invest in New Japan?
There are different levels of exposure to the Japanese stock market.
Investors can buy the benchmark Tokyo Stock Exchange (TSE) index (Ticker: TMJ) and the Nikkei 225 (TSX: N225) index, which both track the Nikken index, a proxy for Japan’s stock market (Tick: NKK).
If you want to invest directly in Japan, the Japanese exchange Nikkeion index (Nikkei: NIK) is also a good way to get an idea of the performance of a hedge fund.
A hedge fund typically invests in stocks that are trending up or falling.
“The way the Japanese market is trending, there are a bunch of good companies,” said Kowalski.
“You can put money into a lot different sectors, and you can get a pretty good return.”
If you’re buying stocks that have a lower average price, you may be better off buying in to a fund that’s trading at a lower price, said Kowa.
But there are some other factors that need to be considered.
“I’d probably be much more interested in buying stocks at a market cap, because you’re actually paying less for the investment,” said Peter Nye, an investor at investment firm Nye Securities.
“And you have to remember that in Japan you have so many other things that are going on in the economy that are very important.
So you have a very, very big impact on what happens with the market.”
If you want a diversified portfolio, the best choice is to put some of your money into real estate, according to Nye.
“Real estate is so good,” he said.
“In Japan, it doesn’t matter where you live, you have access to real estate.”
In terms of investing in emerging market companies, the cheapest way to start investing is to start with small funds.
“For example, a good hedge fund for the emerging market is a fund of about $250,000,” said Nye.
“If that’s not enough, you can go and get a couple of hundred thousand dollars worth of bonds,” he added.
“Then you can use the bond to buy other bonds or stocks.
If you can do that, you’ve got a solid hedge fund that can take on any risk.”
For more advice on investing, see our guide to how to make the best money in Newzealand.
