Johannesburg — THE Blue Ink All South African Hedge Fund Composite, which tracks about 100 hedge funds in SA, increased 11,79% for the 12-month period to end-September, while the FTSE/JSE a ll s hare i ndex rose 7,7% for the period.

Over three years the Blue Ink All South African Hedge Funds Composite increased 41,33%, while the Alsi delivered a 21,32% total return. The all bond index performed slightly better than equities with a 25,62% return, while a high interest rate cycle saw cash return 33,55%.

Blue Ink Investments portfolio manager Kevin Ewer said yesterday the returns by local hedge funds were impressive when one considered they had been generated at relatively low volatility levels -- measured using annualised standard deviation of returns.

"While the JSE is trading above levels seen just prior to the Lehman Brothers collapse, the future direction of the market is still uncertain.

"Equities could close the year between 5% and 45% higher, whereas hedge funds look set to deliver a more stable performance, closing somewhere between 12% and 17% higher," said Ewer.

"The risk facing equity markets is still very real." He said over the past 12 months equity movements had been based on sentiment rather than earnings.

Alternative Investment Management Association SA chairman Robert Foster said local hedge funds were conservatively positioned by international standards, with gearing levels far lower than their global counterparts. Foster said South African hedge funds were characterised by lower levels of cash borrowing, instead using short selling to adjust portfolio exposure.

Leverage, sometimes subject to incorrect interpretation, is the sum of all the exposures in a fund, whether short exposures obtained via short selling, long exposures obtained by borrowing cash to increase investment sizes, or exposures obtained through using derivatives.

South African hedge funds had over the past two years also become more focused on more liquid, exchange listed instruments, to improve the liquidity profile of their portfolios.