The case for hedge fund beta replication

TECHNICAL

Jeremiah Chafkin, president and CEO of AlphaSimplex, explains how hedge fund beta replication strategies can help stabilise portfolio volatility.

The last year hedge funds outperformed the stock market was 2008. This should not be surprising given that hedge funds generally lag the market but make up for it by outperforming when stock markets experience large drops. Some, however, have speculated that recent performance may be a function of the hedge fund industry being at or approaching capacity. While the latter is debatable (given the diversity of styles within the industry) there is little doubt that all types of hedge fund strategies have become more popular in recent years, so the “crowded trade” phenomenon that investors wi...