Funds Winning With South Africa

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The year-long run up in gold prices and the tanking dollar have been the wind beneath the wings of the two top performing multistrategy fund of funds, the $10 million Iconic Matador and the $15.3 million Iconic Absolute Return Funds. The two funds are up 37.73% and 28.67% this year, versus the Hedgefund.net multistrategy fund-of-funds index return of 5.36%. Moreover, they far outpace the next closest fund, the Liongate MultiStrategy fund’s return of 17.09%.


The two Cape Town, South Africa based funds, founded in May and April of last year, respectively, invest in exclusively South African hedge funds. Although which hedge-fund managers the fund is invested with could not be determined – the fund’s portfolio managers did not return e-mails – the fund’s profile on the Hedgefund.net index mentions investments in long-short equity managers. Given the relatively small size of the South African capital markets – hedge-fund standbys like asset-backed and mortgage bonds are in their infancy and the convertible bond market is relatively illiquid – the funds are almost by default likely to have a good deal of their investments in managers playing the South African currency and stock markets.


This has been a winning bet this year. The gold producer and exporter heavy Johannesburg Stock Index – the nation’s primary stock market – has increased 17% from January after conversion to the dollar. The resources component of the index is up 19%. By contrast, the benchmark Standard and Poor’s 500 index is down 1% through the end of November. Given the continued weakness of the dollar versus other currencies – largely driven by continued American budget deficits and the Federal Reserve’s interest rate increases – gold is likely to remain in its 15-month bull market. In addition, the specter of American inflation looms large, with the consumer price index nearly doubling year-over-year, to 2.6% from 1.3%.


Another way the Iconic fund-of-funds likely made money, according to the Hedgefund.net profile, is investing in hedge fund managers who play the currency markets, most likely via futures. The South African currency – the rand – has appreciated nearly 40% against the dollar over the past two years, driven by the global bull-market in gold and, to a lesser extent, diamonds.


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