The Performance of Passively-Managed Hedged ETFs

30 Pages Posted: 16 Jan 2020 Last revised: 17 Mar 2021

See all articles by Jason M. K. Cheng

Jason M. K. Cheng

Hong Kong Polytechnic University

Joseph K. W. Fung

Hong Kong Baptist University

FY Eric C Lam

Independent Consultant

Date Written: November 01, 2020

Abstract

This study provides early evidence on the performance of passively-managed hedged exchange-traded funds (HETFs) introduced rather recently in late 2006. The data covers surviving HETFs in 2017 under global macro and long-short classifications. Using Fung and Hsieh’s (2004) 7-factor model and Edelman, Fung and Hsieh’s (2012) revised 8-factor framework, the study finds significant negative alphas for the HETFs despite the survivorship bias. The study extends the literature on mutual fund performance and provides incremental evidence on the differential performance between global macro and long-short HETFs. The poor performance of the HETFs overall can be attributed to their high expense ratio and tracking error.

Keywords: Expense Ratio; Fund Performance; Hedged Exchange-traded Funds; Tracking Error

JEL Classification: G12; G14; G23

Suggested Citation

Cheng, Jason M. K. and Fung, Joseph K. W. and Lam, Full Yet Eric Campbell, The Performance of Passively-Managed Hedged ETFs (November 01, 2020). Available at SSRN: https://ssrn.com/abstract=3505061 or http://dx.doi.org/10.2139/ssrn.3505061

Jason M. K. Cheng

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Joseph K. W. Fung (Contact Author)

Hong Kong Baptist University ( email )

Department of Economics
Kowloon, Hong Kong
Hong Kong

Full Yet Eric Campbell Lam

Independent Consultant ( email )

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