Wide Performance Dispersion in Volatile Markets

Chidem Kurdas

Global macro is the kind of flexible strategy that should do well in a difficult economic environment. How did investors in the strategy do in 2011? It depends, is the answer. If they picked the right manager, they made a fabulous 30% or more gain for the year. They picked the wrong one, they lost a lot of money.

The spread across managers is so wide that macro strategy indexes tell divergent stories. BarclayHedge reports an almost flat positive 0.36% return through December, but many funds have not yet sent their numbers to the database. The main Hedge Fund Research macro index shows a 3.5% loss through November.

By contrast, the Dow Jones Credit Suisse macro index is up almost 6% through November. That is the broad benchmark. The Dow Jones Credit Suisse Blue Chip index for global macro gained nearly 8% for in the same period—the Blue Chip indexes contain  funds with strong track records. Then again, yet another Dow Jones Credit Suisse macro index lost around 10% through December.

Indexes for the same strategy vary so much because they’re based on data from different funds and the funds’ performance is all over the place.

Hedge fund returns always tend to deviate more than mutual funds returns, in large part because hedge managers tend to have more distinctive approaches. Performance may be even more widely dispersed now, because managers respond differently to market uncertainty.

As a result, investors are paying more attention than ever to managers’ past experience in tough markets. What do investors want? Crisis-scarred survivors who showed themselves capable of turning volatility to account.

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One Response to “Wide Performance Dispersion in Volatile Markets”

  1. Investing for Worst Case Scenario « HedgeFundSmarts Says:

    […] emphasizes “how important it is to pick the right manager in alternative investing.” Indeed, the performance dispersion among managers is wider than ever, so that investors in the same strategy can make money or lose money depending on the manager […]

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