keep your leverage at acceptable levels, diversify over a broad range of markets , avoid illiquid investments and try to do something else than the rest of the pack.
Sure, it's only a subset of hedgefunds that are open to new investors and willing to supply daily valuations, but the numbers are pretty horrible. HFRX Global Hedge Fund Index -5.5% HFRX Convertible Arbitrage Index -3.7% HFRX Distressed Securities Index -0.4% HFRX Equity Hedge Index -5.7% HFRX Equity Market Neutral Index -4.4% HFRX Event Driven Index -5.2% HFRX Macro Index -10.9% HFRX Merger Arbitrage Index -3.5% HFRX Relative Value Arbitrage Index -4.5%
Good advice. If everyone followed it performance would be better and fund blow-ups would almost never happen.
What's your point? The investable indices number are terrible for any 12 month period over the last couple years. Nobody benchmarks HF performance against this index. Why bother?
why bother? first of all it gives you a more recent picture of HF performance, even though apparently the best aren't included. secondly, the performance reflects actual performance of real hedge funds that an actual investor following their selection criteria could have selected, so the fact that investable indices lag non investable indices indicates that a) maybe the non investable indices give a flawed pictures (several biases well documented), b) it's not so easy to pick the right HF's even for experienced people. as for benchmarking... i don't use these to benchmark my performance. have an absolute return benchmark and risk parameters. benchmarking against other HFs doesn't make sense IMO given the very wide range of performances, risk profiles etc.
The investable indexes are know to lag the weighted, full indexes by around half the ROR% on an annualized basis. They are known to have little predictive value as they they represent less than 1% of the capital invested in hedge funds worldwide. Part of their inherent limits to perform come from the fact that they are restricted to strategies and markets that enable them to provide daily liquidity with no lockup periods. Why don't we both come back Mid-September and look at the final broad index results for August. My guess the board HF indices will be down closer to 2% than 4% and most probably not have wiped out "a year of gains".
What would be the point of that? Same as reading last month's newspaper or looking at the July performance of stock markets.
Here's the follow up. Looks like HFRI is around 6-6.5% YTD as of right now, contrary to popular opinion: ----------- Hedge fund losses thinly spread By James Mackintosh Published: September 10 2007 17:59 | Last updated: September 10 2007 18:06 Early results from hedge fund index compilers on Monday suggested that big losses at some of the worldâs largest funds last month were not repeated across the industry, with the average fund down only 1.3-1.6 per cent, far less than expected. Chicago-based Hedge Fund Research said that, with almost half of funds reporting August results by Monday, its equal-weighted index was down 1.31 per cent last month, with Russian and eastern European funds leading the decline. Barclay Hedge, based in Iowa, said that with more than 1,000 funds reporting, the average was down 1.56 per cent.