Are your clients prodding you for hedge funds and other alternative investments to diversify their portfolios and boost paltry returns on equities and bonds? They might want to think again. An analysis of hedge funds suggests that they provide neither diversification nor better returns, according to Vanguard research.

Vanguard compares the performance of various categories of hedge funds with that of the broad U.S. equity market, the overall U.S. bond market, and a 60% equity/40% bond portfolio from November 2007 to December 2011. More specifically, Vanguard compares their performance during the market downturn from November 2007 to February 2009 and during the market recovery from March 2009 to December 2011.

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