Youth is not wasted on hedge funds.
So says a report released on Wednesday from eVestment.
The study suggests that the age of a hedge fund plays a greater factor in relative performance than size of assets.
“Young [hedge] funds posted the highest cumulative returns since 2003 and during the past five years have also outperformed mid-age and tenured funds,” according to the report. “By annual returns, young funds have consistently outperformed mid-age and tenured funds.”
The hedge fund industry is maturing, with a greater number of older and larger funds, according to eVestment.
Small hedge funds have outperformed their larger peers on a cumulative basis since 2003, although more recent data shows the tendency for smaller funds to outperform has declined.
Other studies have documented how younger, emerging hedge funds on average have outperformed larger, more established managers. In other words, size counts — and smaller can be better because managers can be more nimble.
Smaller transactions are also less likely to impact the prices of securities that managers are trading. And smaller asset bases can allow managers to focus only on their best ideas, since they’re less likely to be forced to put money to work.
In fact, some of the greatest investors and hedge fund managers of all time delivered the best performance of their careers when they were small and undiscovered portfolio managers.
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DISCLAIMER: The information in this material is not intended to be personalized financial advice and should not be solely relied on for making financial decisions. Past performance is no guarantee of future results. Covestor provides limited due diligence to verify portfolio managers’ past investment performance, which is not audited or verified by an independent third party. Covestor Limited (“Covestor”) is an SEC registered investment adviser. Information pertaining to the registration status of Covestor can be found at www.adviserinfo.sec.gov, or may be received from Covestor upon request.