Whitepaper

Explaining hedge fund index returns

The emergence of the Alternative Beta industry can be seen as an evolution in the world of investing. Certain strategies, previously only known to a few, have made their way into the public domain. As evidence of this shift, the work described in this short note shows that Hedge Fund returns are historically described principally by these previously unknown (now known) factors consistent with the idea that today’s beta is yesterday’s alpha.

We show that we are able to capture the returns of the Société Générale Commodity Trading Advisor (SG CTA) index and two of the HFR Global Hedge Fund indices through a regressed combination of Trend Following, developed and emerging market equities and delta hedged option portfolios. This observation helps to unblur the line between Alternative Beta and genuine Absolute Alpha.