Chart of the Week: Hedge Fund Strategy Performance

Chart of the Week: Hedge Fund Strategy Performance

over 4 years ago2 mins

This week’s Chart of the Week shows how various hedge fund strategies performed last month, as well as over the rest of year so far. And as you can see, not all funds are created equal…

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What does this mean?

The best performing strategy in September was “long/short equity” – i.e. betting on individual stocks the fund thinks will go up or down in value. For those funds that made the right bets, the approach delivered 15% returns in just a month – though those who got it wrong lost almost 5%.

Why should I care?

Over the course of the year, “multi-strategy” has beaten out everything else. As the name implies, these funds do a bit of everything – shifting money around to take advantage of any available opportunities. Spreading risk across different strategies and moving out of an area when it starts to sour seems to work, and is a lesson you can learn for your own portfolio.

But there’s a ton of variation within multi-strategy returns. Some funds earned 45% returns, and others ended up with 4% losses. For something more predictable, an “event-driven” strategy – that is, betting on things like mergers, acquisitions, and earnings reports – might be the way to go. Most financial events, for reasons our News And Markets Pack goes into in more detail, are fairly easy to see coming, which reduces the risk of losses. On the other hand, it also makes it tricky to secure the big bucks.

Some investors are willing to make that compromise: they put money into event-driven funds in the third quarter of this year, despite the overall hedge fund market seeing investors withdraw cash this year. That trend has also proved beneficial for passive funds, which now make up a bigger portion of assets than actively managed products, like hedge funds.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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