Risky Strategy Sinks Small Hedge

Follow-up on some less successful investment strategies by hedge-funds, to say the least :

The back-tested results for the Spruce Alpha fund may not have taken into account how markets and investors would react given the kind of circumstances that took place in August. The hypothetical results could have underestimated the fact that some E.T.F.s are used as trading instruments that big money managers move quickly in and out of in times of extreme market volatility.

In a disclaimer to its marketing materials, Spruce Alpha also noted some of the unreliability of back-tested returns. The hypothetical results “do not represent the results of actual trading” and “were achieved by means of the retroactive application of a hypothetical model that was designed with the benefit of hindsight and could be adjusted at will until desired or better performance results were achieved,” the disclaimer reads.

→ The New York Times