Are 2 Hedge Funds better than One for Portfolio Diversification?

CARL LLC
CARL LLC
Sep 6, 2018 · 3 min read

With the bull market charging through its ninth year, investors are increasingly concerned about the day the gains will end. After all, when the markets shift, stocks tend to slide at a faster pace than they rally.

Of course, hedge funds are among the best ways to secure downside protection. They employ strategies that prepare for a market decline instead of just investing assets directly in long-only equity. Amid the financial crisis of 2008, the average hedge fund lost about 18 percent, when the Dow Jones Industrial Average dropped 34 percent and the S&P 500 slid 38 percent.

“Someone who is concerned about the downside may want to allocate to hedge funds in case there is a big meltdown in the markets,” Morningstar analyst Tayfun Icten told CNBC.

You may have heard that the number one rule of investing is “diversify, diversify, diversify.” But does that apply to hedge funds as well? Should you invest in more than one hedge fund?

A hedge fund pools money to invest in several equities in a variety of ways to try to maximize returns. So, investing in one hedge fund promotes diversity in your portfolio. But, each hedge fund has its own unique strategy and focuses on a concentrated niche of the market … and on a particular asset or
security, from real estate to stocks. From conservative to aggressive, hedge fund styles vary widely. Among quantitative hedge funds, managers create specific, customized algorithms to choose securities. So, investors who participate in multiple hedge funds increase their diversity and reduce risk.

Growing Options in Quant Strategies
The number of quantitative hedge fund offerings is rapidly growing amid higher demand. According to Morgan Stanley data, overall quant strategies are growing at about 15 percent per year, and many analysts agree quantitative funds are the fastest-growing area of the hedge fund market.

In fact, total assets under management of computer-controlled funds are nearly $1 trillion. In the past seven years, the amount of money in these funds has roughly doubled.

“Over the past decade the results of systematic quantitative investing have been undeniable,” Philippe Jordan, president of French quant hedge fund CFM, told the Financial Times. “People have gone from being skeptical and uninterested to being artificial intelligence groupies.”

But, again, each of these hedges funds are different. Some are aimed at more conservative investors who want fixed income and low risk. Others offer more aggressive strategies designed for breath-taking returns, but they carry much higher risk.

Most hedge funds have minimum investment thresholds of more than $500,000, investors who want to invest smaller amounts do have options. Technology platforms and mobiles apps like Carl provide a new
way of tapping into the benefits of numerous hedge funds, but without the restrictive requirements, for maximum diversification. And they reliably outperform the S&P 500.

Carl’s quantitative funds, which leverage automated processes to routinely rebalance portfolios, run the gamut of investment types. So investors can customize their own portfolios to meet their financial needs.

Sources:
https://www.cnbc.com/2017/09/20/hedge-funds-promise-downside-protection-should-you-invest.html
https://www.ft.com/content/ff7528bc-ec16-11e7-8713-513b1d7ca85a

Invest With CARL

Technology Platform and Mobile App for Automated Data-Driven Investing. We publish stories about any and all things investing.

CARL LLC

Written by

CARL LLC

Invest With CARL. Technology Platform and Mobile App for Automated Data-Driven Investing

Invest With CARL

Technology Platform and Mobile App for Automated Data-Driven Investing. We publish stories about any and all things investing.

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade