Homemade Sector Hedge Funds: Can Investors Replicate the Returns Without Paying the Fees?
33 Pages Posted: 10 Aug 2006
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: Suggested Citation