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Published on November 15, 2007

The much-heralded alpha strategy is theoretically independent from systematic or market risk. It is what some hedge funds can afford to do with their market-neutral strategies, such as convertible arbitrage or the aforementioned long/short strategy.

Anya Khanthvit of Thammasat Business School said that funds could benefit from "extracting" alpha excess return by ridding themselves of the beta return, which is attributed to the overall market return and therefore exposed to market volatility.

In the ever more competitive market, many asset and fund management firms have pried open the working process of their funds for prospective customers to see, and so gain their trust.

MFC Asset Management is the latest company to try just that by introducing what it claims to be the first fund in Thailand to use its proprietary risk-management tool, MFC Investment Cockpit, to assess and hopefully limit the beta.

The cockpit includes SAS-inspired devices such as the Return Navigator and Risk Thermostat. The first in lay terms simply means picking the right stocks through fundamental and technical analyses and assessing various corporate risks, using the S&P 100 VIX, while the second assesses exchange-rate risk, using the 10-year US swap spread.

The new Bt400-million MFC Q-Port fund will mix and match 68 stocks in its portfolio, based on individual stocks' fundamentals and liquidity, for the sweet alpha return, said Pichit Akrathit, president of MFC Asset Management.

MFC executive vice president Supakorn Soontornkit added that the fund size was kept small so as to maintain a certain level of liquidity and prepare for unexpected events such as the recent Black Monday. He said the fund's stop-loss method would be quick to cash out its holdings and buy call SET50 futures.

Such short positions, the result of extracting alpha returns, would pose a derivatives risk, though, said Anya.

Elsewhere, PrimaVest Asset Management is preparing to launch a new foreign investment fund, this time investing in emerging markets' bonds. It will invest 80 per cent of the fund's net asset value in PIMCO Funds' Emerging Markets Bond Fund-Class H Retail, hoping to ride on the wave of 8-10 per cent GDP growth of these countries.

Ki Nan Tsui

 The Nation