Hedged ETFs - Do They Add Value?
Posted: 7 Apr 2016
Date Written: April 4, 2016
Hedged ETFs provide individual investors with the opportunity to invest in ETFs that follow strategies similar to those of hedge funds and seek returns uncorrelated with the market. In this paper I analyze the performance for 6 different categories of 49 Hedged ETFs and 539 Hedged Mutual Funds from January 2008 – December 2014, and compare them to 5 different asset categories of index ETFs. Hedged ETFs and Mutual Funds had highly negative or low correlation with other index ETFs which indicates they did help investors diversify. Hedged ETFs also had much lower risk compared to other index ETFs with the exception of bond market ETF AGG. However, this did not translate into superior absolute or risk-adjusted performance, and Hedged ETFs underperformed all other asset categories (with the exception of Commodities index ETF DBC). The absolute and risk-adjusted performance of Hedged Mutual Funds was similar to that of Hedged ETFs. Based on these findings investors would have been better off with index fund ETFs.
Keywords: Hedge Funds, Investments, Exchange Traded Funds (ETFs), Index fund ETFs
JEL Classification: G11, G14
Suggested Citation: Suggested Citation