Why Hedge Fund ETFs Make Sense

A new breed of passively managed hedge funds would give investors a benchmark to judge the returns of traditional active hedge funds

Alastair Kellett 24 September, 2012 | 5:00AM

Over the last two decades, the mainstream emergence of passive strategies for running stock and bond portfolios has shaken up the fund universe, affecting investor behaviour and the way traditional fund managers are perceived, evaluated, and compensated.

In the same way, there is still much more room for passive management to have an impact on hedge funds.

Hedge funds have always done their own thing, cosseted from the broader world of wealth management by rules around who can and can’t invest in them, and chasing profits in ways and places that traditional investment vehicles are unwilling or unable to pursue. Being un-benchmarked and uncorrelated has historically let them charge a premium for their work: the typical hedge fund comes with a 2% annual management fee, and an incentive fee of 20% of the fund’s profits.

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About Author

Alastair Kellett

Alastair Kellett  is an ETF analyst with Morningstar Europe.

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