Hedged ETFs

Abstract

Hedged Exchange Traded Funds (ETFs) provide individual investors with the opportunity to invest in ETFs that follow strategies similar to those of hedge funds and seek returns uncorrelated with the market. In this article I analyze the performance of six different categories of 49 Hedged ETFs and 539 Hedged Mutual from January 2008 to December 2014, and compared them with five different asset categories of index ETFs. Hedged ETFs and Mutual Funds had highly negative or low correlation with other index ETFs which indicates that they did help investors diversify. Hedged ETFs also had much lower risk compared with other index ETFs with the exception of bond market ETF AGG. However, this did not translate into superior absolute or risk-adjusted performance, and Hedged ETFs underperformed all other asset categories (with the exception of Commodities ETF DBC). The absolute- and risk-adjusted performance of Hedged Mutual Funds was similar to that of Hedged ETFs. Based on these findings investors would have been better off with index fund ETFs.