{"id":881117,"date":"2026-10-23T08:53:56","date_gmt":"2026-10-23T06:53:56","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=881117"},"modified":"2026-10-23T08:53:59","modified_gmt":"2026-10-23T06:53:59","slug":"why-hedge-funds-can-deliver-when-markets-fall","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/industry-news\/881117\/why-hedge-funds-can-deliver-when-markets-fall\/","title":{"rendered":"Why hedge funds can deliver when markets fall"},"content":{"rendered":"\n<p><em>By Kim Zietsman, Laurium Capital.<\/em><\/p>\n\n\n\n<p>Investors often only discover the true value of diversification when markets come under pressure.<\/p>\n\n\n\n<p>In rising markets, many risk assets appear to work well together.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><a href=\"https:\/\/www.lauriumcapital.com\/?utm_source=BusinessTech&amp;utm_medium=Article&amp;utm_term=October-2026\" target=\"_blank\" rel=\"noreferrer noopener\">Learn more about Laurium Capital<\/a>.<\/strong><\/li>\n<\/ul>\n\n\n\n<p>During periods of stress &#8211; when equities, bonds and currencies are repriced at the same time &#8211; the difference between owning several investments and owning genuinely differentiated return streams becomes clear.<\/p>\n\n\n\n<p>This distinction has been especially relevant in 2026. In the nine months to 30 September, the Laurium Market Neutral Prescient RI Hedge Fund returned 6.7% net of fees, while the FTSE\/JSE Capped All Share Index declined by approximately -3.0%. The difference was particularly pronounced in March and September this year.<\/p>\n\n\n\n<p>In September, the fund gained 0.6% as the market fell -5.8% and March the market fell by -10.6% whilst the fund only retreated by -0.9%. This divergence demonstrated the benefit of generating alpha from long and short positions rather than relying on a rising equity market.<\/p>\n\n\n\n<p>For a strategy designed to generate returns with limited dependence on market direction, this is the fund walking the talk.<\/p>\n\n\n\n<p><em>Source: Morningstar Direct<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">A difficult market for long-only investors<\/h2>\n\n\n\n<p>The market volatility has been uncomfortable for long-only investors because their portfolios remain structurally exposed to market direction.<\/p>\n\n\n\n<p>Good stock selection may soften the impact of a falling market, but broad equity exposure can still dominate the outcome.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">A different return equation<\/h2>\n\n\n\n<p>A market neutral hedge strategy is constructed differently.<\/p>\n\n\n\n<p>It combines long positions in companies expected to outperform and short positions in companies expected to underperform.<\/p>\n\n\n\n<p>Overall net market exposure is kept low, allowing returns to be driven mainly by the difference between the winners and losers selected by the manager.<\/p>\n\n\n\n<p>The fund therefore does not need the JSE to rise to generate a positive return. Rather, it needs its long ideas to perform better than its short ideas.<\/p>\n\n\n\n<p>This relative-performance focus is particularly useful when market direction is uncertain and the gap between stronger and weaker companies is wide.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Idiosyncratic alpha<\/h2>\n\n\n\n<p>A key advantage of hedge funds is their ability to generate idiosyncratic returns: returns driven by company-specific research, relative-value opportunities and portfolio construction rather than the direction of the overall market.<\/p>\n\n\n\n<p>This provides access to sources of alpha that differ from the equity-market beta embedded in conventional long-only funds.<\/p>\n\n\n\n<p>Alpha can come from both sides of a market neutral portfolio.<\/p>\n\n\n\n<p>A long position may add value when a company grows earnings faster than expected, improves margins or benefits from a strategic catalyst.<\/p>\n\n\n\n<p>A short position may contribute when a company disappoints, faces structural pressure or is priced too optimistically.<\/p>\n\n\n\n<p>Returns depend on identifying these differences correctly &#8211; not on the overall equity market rising.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What negative downside capture means<\/h2>\n\n\n\n<p>These differentiated return drivers help explain why the Laurium Market Neutral Fund has historically shown negative downside capture relative to the FTSE\/JSE Capped All Share Index.<\/p>\n\n\n\n<p>Downside capture measures how a fund performs on average during months when the equity market declines.<\/p>\n\n\n\n<p>A figure below 100% indicates that it has lost less than the market.<\/p>\n\n\n\n<p>A negative figure goes further: it means that, on average, the fund has generated a positive return during those down months.<\/p>\n\n\n\n<p>This does not mean the fund will rise every time the market falls, or that investment risk disappears.<\/p>\n\n\n\n<p>It shows that the strategy\u2019s return pattern has historically differed when equity markets are under pressure &#8211; precisely when diversification is most valuable.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Protection without abandoning opportunity<\/h2>\n\n\n\n<p>Market neutrality is not about eliminating all risk or guaranteeing a positive outcome in every period.<\/p>\n\n\n\n<p>It is about reducing the extent to which portfolio returns depend on a rising market.<\/p>\n\n\n\n<p>Disciplined hedging, liquidity management and position sizing are central to this objective.<\/p>\n\n\n\n<p>The Laurium Market Neutral Fund focuses on liquid, listed South African equities and applies fundamental research to identify relative value.<\/p>\n\n\n\n<p>In a concentrated market, this allows the team to look beyond the headline index and focus on company-specific opportunities on both sides of the portfolio.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">A role in a diversified portfolio<\/h2>\n\n\n\n<p>For South African investors, market neutral funds can complement traditional equity, multi-asset and fixed-income portfolios.<\/p>\n\n\n\n<p>Their role is to add idiosyncratic alpha with a return pattern that is less dependent on equity-market direction.<\/p>\n\n\n\n<p>The fund\u2019s negative downside capture is evidence of that differentiated behaviour.<\/p>\n\n\n\n<p>The current environment is a reminder that diversification should be judged by behaviour, not labels.<\/p>\n\n\n\n<p>When traditional assets respond to the same inflation, interest-rate or geopolitical shock, investors need strategies with genuinely different sources of return.<\/p>\n\n\n\n<p>The Laurium Market Neutral Fund\u2019s positive performance in a falling market is a practical example.<\/p>\n\n\n\n<p>It has relied on fundamental research, relative-value stock selection and disciplined hedging &#8211; the tools it was designed to use to generate real returns through all parts of the market cycle, including the ups and the downs.<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/www.lauriumcapital.com\/?utm_source=BusinessTech&amp;utm_medium=Article&amp;utm_term=October-2026\" target=\"_blank\" rel=\"noreferrer noopener\">Learn more about Laurium Capital<\/a>.<\/strong><\/p>\n\n\n\n<p><em>Laurium Capital is an authorised financial services provider (FSP 34142).<\/em><\/p>\n\n\n\n<p><em>This article is published for information purposes and does not constitute financial advice. Past performance is not necessarily a guide to future performance. Investors should consider their individual circumstances and seek appropriate professional advice.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Investors often only discover the true value of diversification when markets come under pressure. In rising markets, many risk assets appear to work well together.<\/p>\n","protected":false},"author":57,"featured_media":863712,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_sma_x_autopost_status":"posted","_sma_x_autopost_error":"","_sma_x_post_id":"2113524578249068670","_sma_facebook_post_id":"191437357620492_2246262556194143","_sma_instagram_post_id":"","_sma_x_attempts":1,"footnotes":""},"categories":[10459],"tags":[25933,26917,6567,1170,19603,24371],"class_list":["post-881117","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-industry-news","tag-ftse-jse-all-bond-index","tag-ftse-jse-capped-all-share-index","tag-hedge-funds","tag-investors","tag-laurium-capital","tag-laurium-market-neutral-fund"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/881117","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/57"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=881117"}],"version-history":[{"count":7,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/881117\/revisions"}],"predecessor-version":[{"id":881126,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/881117\/revisions\/881126"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/863712"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=881117"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=881117"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=881117"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}