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"It sounds counter intuitive but there are good risk takers and bad risk takers"
Olivier Le Marois, Riskdata |
The study looked at the performance from July 2007 to March 2008 of 3,200 hedge funds and funds of hedge funds that had a track record since December 2004.
Investors typically select a fund based on previous returns. This means avoiding funds that have had abnormal return distributions and large drawdowns. Although this method eliminates extreme risk takers from a portfolio, it fails to detect "time bombs with hidden risk" says Riskdata’s chief executive, Olivier Le Marois. Indeed, selecting funds based on this method would have resulted in returns of just 0.4% for the July to March period....
