November 9, 2010
Long-short funds have provided similar protection for the equity portion of a portfolio. The data below show the maximum drawdowns for the HFRI equity hedge index (in black) and the S&P 500 (in blue) over the last 20 years:
Long-short strategies have “cut off the bottom” in down markets. They have also underperformed in up markets, Welch said, but the gains have offset the losses “by a long shot.” Similar results have been the case for non-US markets.
Welch also noted the remarkable track record of CTA funds (also known as managed futures), providing the data below for the HFRI macro systematic diversified index (in blue) and the S&P 500 (in grey):
Although CTAs have not consistently outperformed equities, the remarkable aspect of their performance is the absence of negative returns for any rolling three-year period in the last 18 years.
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