Four types of hedge funds to diversify portfolios

HEDGE

Mark Hodgson, managing director of Gatemore Capital Management, outlines four categories of hedge funds which can help to create diversified portfolios.

When building portfolios, we want to add hedge strategies and funds with low correlation to each other and the wider market and differentiated risk/return behaviour in various market environments. While evaluating these specific attributes can be a lengthy process, we have developed a tongue-in-cheek shorthand for describing the basics of a fund’s broad risk/return profile. We describe funds as volatility mitigators, benchmark reconstructors, niche exploiters or alpha generators. The usual terminology used to describe asset classes in general, and hedge fund sub-strategies specificall...