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October 12, 2005
Hedge funds - an obvious alternative due to the low correlation with traditional assets
The inclusion of alternative investments-such as hedge funds-into a client's portfolio can substantially reduce volatility and has become increasingly important in recent years, according to Toby Joll, executive director at Schroders Private Bank.
Given lower expected nominal returns from equity markets in coming years, there is now a stronger case than ever for the inclusion of hedge funds into a portfolio.
The key benefit is the low correlation with traditional asset classes. Hedge funds can also provide a degree of protection during periods of hostile equity markets. Certainly, this was the case during the bear market in equities between April 2000 and March 2003.
Over the long term, hedge funds have, on average, produced higher returns with lower levels of volatility than other asset classes.
For instance, the CSFB Tremont All Hedge Funds index has returned an average of 12.3% pa over the period from January 1994 to March 2004, with 8% volatility. Over the same period, the FTSE World Index returned 5.7% pa, with 15.7% volatility. UK Bonds returned 6.8% with 4.7% volatility and Global bonds, ex UK returned 4.3%pa with 6.7% annual volatility.
Posted by su at October 12, 2005 11:35 AM