Title: Hedge Fund Investing: Perception and Reality
Abstract: Counter to widely held perceptions, hedge funds as an investment class have exhibited considerably less volatility and smaller drawdowns than traditional long-only equity investments. A basic concept that all investors should understand about hedge funds is the key rationale for why they are not merely a legitimate investment, but even a compelling one. A major advantage of hedge funds versus traditional investments is that they encompass an extremely diverse range of strategies. Hedge funds have one important advantage over traditional stock and bond investments: They encompass a heterogeneous range of investments, which allows for a much greater degree of diversification than is achievable within the traditional investment world. This feasibility for creating well-diversified portfolios is the key reason why hedge fund portfolio return/risk levels are significantly higher than equity index or mutual fund return/risk levels. The combination of the higher return/risk ratios of hedge fund portfolios and their moderate diversification with equities implies that adding a hedge fund allocation component can usually be expected to enhance the return/risk performance of traditional portfolios. There is a wide chasm between facts and perception regarding hedge funds as an investment alternative. Hedge funds are perceived to be high-risk investments that offer high return potential. The empirical evidence, however, indicates that hedge funds are considerably less risky than traditional equity investments, while offering roughly similar return levels.
Publication Year: 2012
Publication Date: 2012-01-02
Language: en
Type: other
Indexed In: ['crossref']
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