Hedge funds using technicals tipped for 2009-2010

By Martin de Sa'Pinto

GENEVA, Nov 12 (Reuters) - Hedge funds using technical indicators are likely to fare better in the next two years than those purely basing their strategy on economic fundamentals, a survey of around 200 investors showed on Wednesday.

The survey of asset managers, institutions, and high net worth investors at the Global Alternative Investment Management (GAIM) Fund of Funds conference in Geneva showed 36 percent saw such trading-based strategies set to outperform in 2009-2010.

These strategies generally use technical indicators or a combination of technical and fundamental indicators to make short or medium-term bets on market movements.

Long/short equity strategies were chosen by 16.7 percent. Long/short managers vary their overall market exposure via long positions in those equities that they expect to outperform the broader market and short positions in those expected to underperform.

Short positions mean managers sell equities they do not own with the aim of buying them back when the price falls.

A further 13.9 percent of those surveyed said arbitrage strategies, which seek to profit from the inefficient pricing of securities, would be the best performers for the two-year period.

A third of respondents expressed a preference for funds which combine trading, arbitrage and long/short equities strategies.

Sixty-nine percent of respondents said funds of hedge funds would continue to attract investors despite their negative performance through the end of September.

The category returned a negative 5.67 percent in the first nine months of the year, according to data from EDHEC, a Nice, France-based asset management research institute.

Anecdotal evidence suggests that by the end of October, funds of hedge funds may have been down by as much as 10 percent, with early data indicating that most underlying hedge fund strategies posted hefty losses in the month.

A further 31 percent said funds of hedge funds would survive but that their structure and fees would evolve.

Asked about alpha, or outperformance relative to an expected risk-adjusted rate of return, 55.3 percent said this would come from a combination of manager skill and portfolio construction.