Hedge funds a key portfolio tool (Morningstar Canada)

Date: Tuesday, June 24, 2003

While acknowledging that some alternative strategy funds have high-risk, high-return mandates, Knowles suggested that advisors and investors make more conservative choices. "Don't buy hedge funds for their return potential. Buy them for their risk-reduction potential." Even if future hedge funds returns are significantly lower than those experienced in recent years, Knowles said, hedge funds can still be expected to improve a balanced portfolio's risk-adjusted returns. Most of the benefit will come from "the propensity of hedge funds to reduce losses". Also putting hedge funds in perspective, Arrow's McGovern said they should be viewed as a complementary asset class rather than a replacement for traditional investments. For retail investors, he wouldn't recommend an allocation of more than 10 to 20% to the alternative strategies category. "It won't replace all the long term only strategies in the world," he said. http://www.morningstar.ca/globalhome/Industry/News.asp?Articleid=ArticleID62020037121