Another Hedge Fund Tracker Launches

No one would ever design a mutual fund tracker, which returned a little bit less than mutual funds in aggregate. The reason is obvious: mutual funds in aggregate always underperform the market as a whole, so you'd be much better off in an index fund even before the built-in underperformance.

Hedge fund trackers, by contrast, seem to be quite popular: the latest is called Salto, and generally underperforms, by a little bit, the MSCI Hedge Fund Composite Index. In other words, take the returns from hedge funds, in aggregate - making sure to include the really bad ones along with the really good ones. Then remove all the fees they charge. And then remove a little bit more. The result is what you'll get from Salto, which is described by the CEO of Innocap, the company which developed it, as outperforming "most, if not all, of the investable hedge fund indices on the market" - emphasis on the "investable".

Now the MSCI Hedge Fund Composite Index did reasonably well last year, and there's good reason to believe that it will outperform the stock market as a whole if the stock market goes down substantially. On the other hand, it does seem as though we're reaching a Great Unraveling of the kind of ultra-sophisticated structured products and relative-value plays in which many hedge funds have made their name. Now more than ever, it's important to invest in something you understand - and a fund tracking hedge-fund returns does not fit that bill.