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January 25, 2012

Hedged Equity: What Happened to the Alpha?
By Nat Kellogg, CFA, Associate Director of Research, Eric Przybylinski, CAIA, Senior Research Analyst

Coming out of a phenomenal period of relative performance during the tech boom and bust, hedged equity performance declined relative to the S&P 500 during the mid 2000’s.

However, absolute returns were still strong in risk adjusted terms, and hedged equity offered significant downside protection in 2008. While hedged equity trailed as the stock market rebounded in 2009, returns were high and trailing three-year performance strong. Lately though, even as hedged equity hedge funds have continued to offer risk reduction in terms of lower volatility, weak hedge fund performance has prompted increasing investor concern.

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