Mutual/Hedge Funds

…evidence indicates that hedge funds with low net market exposure may earn returns largely by assuming that correlations between assets and asset classes will behave predictably, and rogue correlation spikes may swamp these funds with extremely large drawdowns.

…evidence indicates that hedge fund investors may be able to gain an edge by limiting consideration to funds with recent corporate releases but no other recent media coverage.

…investors may want to consider all these fees, expenses and costs debited from fund assets as evidence of fund manager emphasis on outcomes other than maximizing net return.

…hedge fund investors may want to consider the probability and persistence of increasing high water mark in selecting hedge funds.

…evidence indicates that cloning winning mutual funds with consistent styles may be an attractive stock-picking strategy.

…evidence indicates that hedge fund investors should lean toward low-profile funds.

…evidence from a simple test on a small sample supports belief that the aggregate equity mutual fund liquidity ratio has some power to predict future stock market returns.

…evidence indicates that hedge funds employing quantitative analysis strategies tend to outperform those that use qualitative strategies, perhaps based on superior market timing.

…evidence indicates that self-reported hedge fund performance data tends to overstate hedge fund industry return and understate risk.

…empirical analysis indicates that ignoring hedge fund withdrawal restrictions may result in material overestimation of the benefits of including hedge funds in a portfolio.

…evidence provides weak support for a belief that managers of U.S. bond mutual funds can on average time the bond market, but fund costs/fees offset any associated net outperformance of reasonable benchmarks.

…evidence suggests that past six-month fund return is a stronger indicator of mutual fund momentum than either nearness of fund net asset value to its one-year high or a more abstract sensitivity of fund returns to stock return momentum.

…evidence from hedge fund due diligence reports indicates a substantial level of misrepresentation by fund managers and confirms return chasing by investors. Key indicators of fund manager truthfulness are uses of external asset pricing and a major auditing firm.

…investors should recognize the difficulty of measuring the value of fundamental investment research in deciding whether or how much to spend for it.

…evidence indicates that equity mutual fund managers can select stocks that deliver economically large risk-adjusted returns, but little of this alpha gets through to fund investors because of alpha-free incentives for fund managers to diversify. Individual investors may want to focus, independently, on stocks that fund managers have newly overweighted.