Designed to challenge some of the commonly held – yet erroneous – views of the markets as well as individual asset classes, the Myths Papers series analyzes the sources and financial implications of unchallenged belief systems.
FROM “MYTHS OF HEDGE FUND INVESTMENT”
Myth: Composite Hedge Fund Indices Are Useful.
Composite indices which represent overall market returns are available for the hedge fund industry. Unfortunately, most composite indices track the full range of fund managers rather than style-pure subsets. Therefore, their performance characteristics change over time when the characteristics of the reporting funds change. As a result, for hedge funds, non-style pure composite indexes past returns may not reflect current or future returns of the index.