In the first installment, I made a case that hedge funds can regain their popularity by reverting to their initial mandate which was to be hedged. I examine here how such a model hedge fund would have performed in the past 50 years if it had returned:
- 0% in all years when the market was down.
- 75% of the market gain in all years when the market was up.
In essence, this fund only has a chance of outperforming the S&P 500 in the long run if the market has a big down year (say 10%+) every few years.
So what do the past 50 years tell us? Read more