Hedge funds beat stocks and bonds on risk-adjusted basis

Hedge funds outperformed both stocks and bonds last year, on a risk-adjusted basis.

While hedge fund returns of 7.4% may have been someway off major indices such as the FTSE 100 and S&P 500, which returned 14% and 9.84% respectively last year, data shows that on a risk-adjusted basis, hedge fund outperformed equities and bonds in 2016.

Information from the Alternative Investment Management Association and data provider Preqin, shows that using the Sharpe ratio – essentially a measure of volatility showing risk-adjusted returns – hedge funds outperformed other asset classes by some margin.

The average hedge fund Sharpe ratio was 1.45, which compares favourably to the S&P 500 at 1.1 and also the MSCI World US Dollar Total Return at 0.68.

The firms estimated that the net gain in the value of hedge fund assets in 2016 represented $120 billion (111.8 billion).

Amy Benstead, head of hedge fund products at Preqin said that as markets responded to the unexpected events of 2016 hedge funds were able to “show their worth” and generate their best returns for three years.

©2017 funds europe

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