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Tuesday, May 17, 2022

A Fund In Need Is A Fund Indeed

Date: Thursday, February 8, 2007
Author: Hedge Fund Daily

Hedge funds and those that act like them get a thumbs up in the latest Lipper industry report. Conducted by Andrew Clark, a senior research analyst at Lipper, the study found that hedge funds and HF-like mutual funds are both ?good diversifiers of risk in general and that in many cases they carry with them the additional benefit of maintaining diversification even when stock or bond markets are in free fall.? Clark based his conclusions on a study of various Lipper index data over a 13-year period, and found that none of the hedge fund indices are correlated to any of the mutual fund indices when looking at ?extreme events,? defined as monthly losses that have a 10% chance or less of occurring. ?This is very good news, meaning hedge funds can give very good protection from downdrafts in either stock or bond markets,? according to Clark?s report. On the other hand, it?s a different story when focusing on more common events. Large cap funds were found to be highly correlated to dedicated short bias, distressed, event driven, event-driven multi-strategy and long/short funds. But, Clark adds, these correlations are ?spurious,? since they are ?clearly being driven by correlated behavior in the noise zone (the 40% of returns to the left of the mean). In those instances, noise zone correlations, Clark writes, ?are best treated using trading strategies, not diversification strategies.? The report also found that using hedge fund or HF-like mutual funds for diversification s actually pose less risk than most mutual funds do.