Homemade Sector Hedge Funds: Can Investors Replicate the Returns Without Paying the Fees?

33 Pages Posted: 10 Aug 2006

See all articles by Lorenzo Newsome

Lorenzo Newsome

Xavier Capital Management, LLC

Pamela A. Turner

Howard University

Abstract

We examine the monthly returns of sector exchange traded funds (ETFs) during the period of January 1999 to December 2005 to determine whether employing a momentum/oscillating based trading strategy (relative strength index) could yield comparable returns to that of similar hedge fund indices. The sectors used are energy, healthcare, financials, and technology. There is no statistical difference in mean returns for either of the four sector ETFs and the hedge fund indices. However, there is substantial economic difference in the hedge fund index returns and those of the ETFs using the relative strength index (RSI). Based on the RSI strategies, investors would not be able to replicate hedge fund returns.

Keywords: hedge funds, trading strategy, ETFs, sector funds

JEL Classification: G11, G29

Suggested Citation

Newsome, Lorenzo and Turner, Pamela A., Homemade Sector Hedge Funds: Can Investors Replicate the Returns Without Paying the Fees?. Journal of Investing, Winter 2007. Available at SSRN: https://ssrn.com/abstract=923467 or http://dx.doi.org/10.2139/ssrn.923467

Lorenzo Newsome

Xavier Capital Management, LLC ( email )

1300 Mercantile Lane, Suite 100
Largo, MD 20774
United States

Pamela A. Turner (Contact Author)

Howard University ( email )

Washington, DC 20059
2028061542 (Phone)

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