Alpha Betting
| Sep 18th, 2006 | Filed under: Hedge Fund Industry Trends | By: Alpha Male |
|
By: Alpha Male
Thanks go out to Abnormal Returns for giving Alpha Male a heads-up about a recent Economist article of particular relevance to this blog. (link to article)
The article begins by suggesting that the growth in the ETF Industry and the hedge fund industry are inter-related.
“From January 1st through to August 31st, the average hedge fund returned just 4.2%, according to Merrill Lynch, less than the S&P 500 index’s 5.8% total return.
“So why are people paying up? In part, because investors have learned to distinguish between the market return, dubbed beta, and managers’ outperformance, known as alpha. ‘Why wouldn’t you buy beta and alpha separately?’ asks Arno Kitts of Henderson Global Investors, a fund-management firm. ‘Beta is a commodity and alpha is about skill.’”
So, full points for positioning hedge funds in the appropriate context. However, the magazine goes on to reinforce some of the “urban myths” surrounding hedge funds. Firstly, it is unfair to say that investors seek out hedge funds for “higher returns”:
To continue reading this article please login (at the right) or click here to learn more about accessing our archives.
[...] We would tend to disagree with a point made by Alpha Male at the fine blog All About Alpha on the motivation of investors in hedge funds. The truth is that institutional investors don’t invest in hedge funds because they “desperately need high returnsâ€. They invest because they are tired of riding a roller coaster each year. [...]