For Mutual Funds, Simpler Seems Better
A new study supports the anecdotal evidence.
Oddly, hedge funds thrived during the 1990s and the first half of the Aughts, while “hedge fund-like” mutual fund categories did not. There weren’t many such categories, but those that existed—option-income funds, market-neutral funds, short-term multi-market income funds (don’t ask)—performed poorly.
It is true that those glowing hedge-fund results came with an asterisk. Because hedge funds are not required to report their returns to a central authority, they self-report. That is, they give their results to databases when and if it suits them. That naturally leads to both creation and survivorship biases, with hedge funds surfacing when the numbers support them, and then disappearing when they do not.