COTW: Equity "Hedge" Funds Go All-In

September 18, 2018

The chart below can be downloaded here


Beta is a measure of the degree of systematic risk of a security or portfolio relative to the market (in this case the U.S. stock market). Generally speaking, the higher the beta, the higher the risk of a portfolio. A portfolio with a beta of 1.0 will tend to have the same volatility as the market, rising and falling in tandem with the market. Portfolios considered “hedged”, typically have very low (or even negative) betas, indicating their tendency to move independently of (or even inversely to) the stock market. The HFRX Equity Hedge Index – a popular basket of supposedly lower risk equity hedge funds – currently has the highest beta (market risk) since it was launched over 15 years ago. As the bull market in U.S. stocks has continued, these funds appear to be chasing performance.




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