FUND VIEW-S&P to fall another 15 pct-hedge fund Salus Alpha

LONDON, Nov 11 (Thomson IM) – The S&P 500 index has at least another 15 percent to fall, according to Swiss-based hedge fund firm Salus Alpha, which plans to take out short positions in equities again.

Oliver Prock, Salus’s managing director, told Reuters that his funds, which have previously been short equities, were looking to put on more low-risk shorts.

Shorting means betting on lower prices for a security in the future.

From the end of August to Oct 27 the S&P fell 34 percent as investors worried about the fallout from the collapse of Lehman Brothers and the possibility of a prolonged global recession, although it has since rebounded around 5 percent on bargain-hunting.

‘I don’t see a market bottom here. Even after a short relief rally it will continue to come down. There’s at least 15 percent more in the S&P to go,’ he said in a recent interview.

‘(In) equities (we are) looking for low-risk short re-entry.’

Prock highlighted the insurance sector as an area facing difficulties. Since the end of August the Dow Jones STOXX Insurance index has fallen 32 percent.

‘There are problems in the insurance sector. They all have a portfolio and equity allocation is still too big – portfolios will be under severe pressure. They’re big investors in credit and equities.’

Last month the U.S. Federal Reserve cut interest rates by half a percentage point to 1 percent while earlier this month the Bank of England cut interest rates to a 53-year low of 3 percent.

However, Prock said interest rates are likely to fall further as central banks seek to revive flagging economies.

‘I really think interest rates will come close to zero – in the U.S. definitely so. I don’t see any inflationary concerns.’

Prock said his funds are currently long bonds, which are seen by many investors as a safe haven, and also own some silver and gold positions.

However, they are neutral in currencies, where ‘volatility is just too high’, and short livestock.

Year-to-date Salus’s Alpha Equity Hedged fund is down 9.38 percent, while its Alpha Directional Markets fund, a managed futures hedge fund that bets on trends in global futures markets, is up 55.09 percent

(Editing by David Cowell) Keywords: SALUS/HEDGE