Alternative Mutual Fund Performance
July 8, 2014 - Mutual/Hedge Funds
Are alternative mutual funds attractive for retail investors as hedge fund surrogates? In their June 2014 paper entitled “Performance of Alternative Mutual Funds: The Average Investors Hedge Fund”, Srinidhi Kanuri and Robert McLeod analyze the performance of alternative mutual funds that employ strategies similar to those of hedge funds and seek returns uncorrelated with the equity market. These funds can sell short and use leverage, derivatives, options and swaps to shape and enhance returns. However, they must offer daily liquidity, cover short positions, limit borrowing to a third of assets and limit illiquid investments to 15% of assets. The authors consider nine categories of alternative mutual funds, ranging in population from just three inverse commodity funds to 109 long-short equity funds. They apply both a four-factor (equity market, size, book-to-market, momentum) mutual fund model and a seven-factor (equity market, size, bond market, credit spread, bond trend, currency trend, commodity trend) hedge fund model to measure alternative mutual fund alpha. They aggregate across all funds and within categories based on equal weight. Using monthly data for 256 surviving and 62 dead alternative mutual funds during January 1998 through December 2011, they find that: Keep Reading