Finance

Hedge fund shootout – 36One versus Protea Capital

An analysis of two of South Africa’s prominent hedge funds from 36One and Protea Capital Management reveals a difference in long-term and short-term performance.

Hedge funds are investment vehicles that use complex trading strategies to generate returns.

The funds often take long and short positions in investment instruments to reduce risk or use leverage to maximise returns.

The South African hedge fund scope has decreased in recent years – from 233 funds in 2020 to 216 funds at the end of 2021.

However, assets under hedge fund management grew to R87 billion in 2022 as more investors put their money into these investment vehicles for returns.

South African regulation currently allows two categories of hedge funds – qualified investor and retail.

  • Qualified investor hedge funds require the investor to understand hedge fund investment dynamics and their complexities before investing in it. It also has a minimum investment amount of R1 million.
  • Retail hedge funds are open to any investor but are more strictly regulated in terms of their investment scope and strategies. They typically have a minimum investment amount of R50,000.

At the end of 2021, there were only 100 retail hedge funds in South Africa.

Retail hedge fund performance comparison

Daily Investor compared the performance of two popular retail hedge funds managed by 36One Asset Management and Protea Capital Management:

  • 36One SNN retail hedge fund
  • Protea South Africa SNN retail hedge fund

Both funds are in the same ASISA category – Retail Hedge Fund-Global-Long/Short Equity-Long Bias.

They invest predominantly in South African equities but also have mandates to take positions in other financial instruments.

Their main goal is to identify mispriced securities and take long positions in undervalued securities and short positions in overvalued securities.

It is combined with hedging strategies and diversification to manage risks.

As security prices tend to revert to their intrinsic values, the funds aim to benefit from these movements.

Based on both funds’ September factsheets, the 36One hedge fund outperformed the Protea hedge fund on a 3 and 5-year basis.

However, the Protea fund outperformed the 36One fund in the trailing 1-year period and in 2022. 

The 36One fund was less risky than the Protea fund, with a lower standard deviation. It delivered higher risk-adjusted returns at 1.57% per unit of risk accepted.

DateProtea SA SNN Retail HF36One SNN Retail HF
YTD8.65%4.55%
1 year10.96%10.84%
3 year10.42%14.76%
5 years12.31%12.48%
Since inception10.66%12.06%
Risk11.60%7.34%
Sharpe ratio0.511.65

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