While hedge funds are known to outperform the markets, earlier studies have repeatedly shown they rarely do for a protracted period of time. But a new report, by the
The authors of the study --
The researchers concluded that hedge funds that closed their doors to new investors because of a flood of new assets, continued to perform strongly after doing so. They found that for every 1% that a hedge fund beat its benchmark over a three-year period, it continued to outperform that benchmark by an average of 57 basis points over the next three years. In fact, Jagannathan said, mutual funds that outperform their benchmarks continue to do so only for another 12 months, and they then tend to trail that benchmark thereafter.
The reason hedge funds can deliver better performance, he said, is because they view investments long term, whereas mutual fund portfolio managers are more focuse don the short term.