Inside hedge funds

Hedge funds can perform well even when stockmarkets are falling. However, it is always important for investors to examine the portfolios and understand the strategies that the funds follow. Below is an overview of the main types.

Dario Castagna, 15 June, 2001 | 5:12PM
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Assets in hedge funds increased five-fold between 1994 and today. While some of this was the result of new issuance much of it came about through good fund performance.

The ability of hedge funds to grow, or at least fall less, even when markets are falling is one of their main attractions. According to the weighted index calculated by the Hedge Fund Research Institute from January 1991 to May 2001 the average returns of hedge funds on a global level were 13.67%, which is slightly less than the 14.84% of S&P 500 Index [which invests in 500 of the largest American companies].

However, the average volatility of the hedge funds was 8.11% compared with 14.9% for the S&P 500. If the Sharpe ratio – which measures return relative to risk – is taken into account then hedge fund

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