Hilltop Core Select Fund Slips 0.6% In October

Nov 24 2014 | 11:03am ET

The Hilltop Core Select Fund, a fund of hedge funds, slipped 0.6% in October but is up 5.6% year to date.

The funds largest weightings as of end-October were multi-strategy, managed futures (11.9%) and distressed mortgages (11.7%).

Portfolio manager Rory Hill, in a letter to investors, borrowed a term from British soccer commentators to describe October, calling it “a game of two halves.”

Hill said the most unusual aspect of the month was the movement of the VIX, a measure of the implied volatility of S&P 500 index options, which spiked rapidly up and down.

“Normally, when the VIX spikes up it takes several weeks to drift back down and even then it is likely to settle—for a few more weeks or months—at a level a little above where it started," wrote Hill. "In October, however, the move down was as rapid as the spike up and, with one week to go in the month, the VIX was trading at the same level as had one week into the month; implied volatility was being priced as though absolutely nothing had happened in the intervening fortnight.”

Hill attributes at least part of this “curious behavior” to “unintended consequence arising from the disbandment of bank prop desks.The logic here is that many volatility traders have moved from an environment where they were judged on an annual timeframe, to firms which are driven by monthly results. This is an interesting argument and one we plan to investigate further so we can better understand the consequences—if any—for the managers we are either invested with or which are on our shortlist.”

According to HFR, funds of hedge funds were down 0.55%, on average, in October and are up 1.87% year to date.

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