The blogosphere's own Greg Newton has an article in Barron's this weekend about investing in hedge funds and explores the merits of accessing them through investable indexes.The table to the left is from the article and has return information for investable and non-investable hedge fund indexes.
Hedge funds clearly have their place in the investment world and it is true that they provide liquidity to many parts of the market.
It makes sense to think that hedge funds will become easier to access, take the Super Fund as an example. Just because you can get into a hedge fund doesn't mean you should.
It may not be clear from the things I write about but I try to keep portfolios very simple. The things that effect simple portfolios can be very complex. I believe in trying to learn about complex factors that influence stock markets but I believe complex external factors can be married with simple equity portfolios.
The returns listed in the table don't look to be all that stellar but I think the picture is incomplete. I don't know what makes up the indexes nor does the table indicate the risk taken to get those returns. If a given index from the table averaged 6% per year for five years with only taking 25% of the volatility that would be taken in an S&P 500 index fund then 6% looks very good.
If a given index got 6% with double the volatility of the S&P 500 then 6% stinks.
Another aspect of the hedge fund question is that some of the strategies are easily recreated in a brokerage account for a lot less money. There are funds that invest in commodities, currencies, convertibles and so on. Obviously these funds will be a bad idea for some investors but then again if the fund is a bad idea for someone why would a hedge fund be OK for that same person?
1 comments:
Roger,
You have great timing. Just two days ago, I started investigating the possibility of investing with a "retail" hedge fund and lo and behold, along comes this missive from you.
I have about 3% of my portfolio ear marked for speculative trading (mostly options). Looking at my record in speculative trading, it is clear to me that it is not worth my time. So I figured I would look into hedge funds. Apart from putting speculative funds to better use, a hedge fund investment would provide performance that is independent of stock market performance.
I looked at the Super Fund products and their 16-20% yearly returns - sounds pretty good. I also came across an outfit calling itself SP Trader (www.sptrader.com) sporting an even better performance, albeit their retail product (minimum investment $6500) simply market times S&P futures and does not trade commodities, currencies, etc.
Would you care to share your general view on investing 3-7% of a retired investors million dollar (or thereabouts) portfolio with a hedge fund sporting a good 5 year track record? Do you know of any hedge funds other than the two mentioned above with good track records and a small (less than 50K) minimum investment?
BTW, I love your blog because you eagerly indulge your readers and are responsive and interactive with them. Rock on, dude.
Post a Comment