Last Updated Jul 12, 2011 10:39 AM EDT In what truly must be a story of the triumph of hype and hope over wisdom and experience, hedge funds continue to see inflows despite lousy performance. Hedge funds took in a whopping $8.1 billion in May, and they've experienced inflows each month this year. However, this seems to defy logic, as BarclayHedge founder Sol Waksman told Dow Jones Newswires: "The industry hauled in $75.0 billion in the first five months of 2011, which marks the heaviest such inflow since 2007. Performance, however, has hardly been stellar. The Barclay Hedge Fund Index shows a year-to-date return of just 2.1 percent through May, and many managers are in the red for the year." Our second quarter hedge fund update provides further evidence on the failure of hedge funds by comparing them to widely used benchmarks. The table below presents the returns of the HFRX Global Hedge Fund Index and compares it to the performance of various equity and fixed income indices, both for … [Read more...] about Hedge Fund Update for Second Quarter 2011
Barclay hedge fund index
Vanguard recently announced plans to introduce its first international bond funds and makes a good case for global bond investing. I've been asked several times what I think of the new offerings, and here is my take on what I've learned so far. One important caveat is that Vanguard must by law be in a "quiet period" before the launch of the funds, so I wasn't able to get any specific information beyond the press release. The funds are expected to launch in early 2012. The Vanguard Total International Bond Index Fund will seek to track the Barclays Global Aggregate ex-USD Float Adjusted Index (Hedged). This benchmark includes more than 7,000 global government, agency, and corporate investment grade securities in 57 countries. While I haven't yet confirmed, this seems like the international counterpart of the Total Bond Fund, which follows the Barclays aggregate bond index of US government and investment grade taxable bonds. The annual expense ratio of the ETF and the Admiral share class … [Read more...] about Vanguard’s new international bond index funds
(MoneyWatch) Investors would love to be able to achieve positive returns in both bull and bear markets. That's the "promise," or at least the idea behind, absolute return funds. The devastating bear market of 2008 increased the demand for these funds. Wall Street is happy to meet that demand with its usual array of high cost vehicles. Morningstar recently reported that since the 2008 crisis, 28 absolute return funds were launched, bringing the total to 41 with an astounding $11.1 billion of assets. Unfortunately, there's a reason that the old saying "if sounds too good to be true, it almost certainly is" is a cliché. Absolute return funds try to accomplish their objective using a wide various strategies. While some invest primarily in stocks and bonds, others use commodities, short selling, futures, options and other derivatives, arbitrage strategies, currencies, credit risk, leverage, and almost anything else you can dream up. That's one of the many problems with these funds … [Read more...] about Absolute return funds fail to deliver
(MoneyWatch) Vanguard recently announced plans to launch a new International Bond Index Fund by June 30. The firm filed an amended registration statement with the SEC that replaced earlier plans to launch two bond index funds Vanguard had announced in late 2011, but never launched. According to Vanguard, the new bond fund will track the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged). The index comprises approximately 7,000 high-quality corporate and government bonds (average credit quality AA2/AA3) from 52 countries. The index caps its exposure to any single bond issuer, including a government, at 20% to meet regulated investment company (RIC) tax diversification requirements. The top country holdings as of December 31, 2012, were Japan (23%), France (12%), Germany (11%), and the United Kingdom (9%). The bond fund will be hedged to the US dollar, meaning that it attempts to eliminate foreign currency risk. Vanguard to launch two international bond … [Read more...] about New international bond fund shows promise
(MoneyWatch) Exchange-traded products (ETPs) that are linked to futures contracts on the CBOE S&P 500 Volatility Index (VIX) have grown dramatically in volume and assets since their inception in 2009. They're now among the most heavily traded ETPs. For example, the Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX), the largest volatility-based ETP, has assets of about $1 billion and daily trading volume of about 40 million shares. The reason for the growth of volatility-based ETPs is the perception that they offer a hedge against stock market losses. It's important to understand that the VIX is a forward (not historical) measure of volatility. It represents investors' expectations of future market volatility. If investors become fearful, their demand for portfolio insurance will increase, driving up the price of the VIX. As such, the media often refers to it as the "fear gauge." And there's a negative correlation between the changes in the VIX and changes in the S&P … [Read more...] about Do VIX futures hedge stock market risk?