Risk Mitigation
Risk mitigation is a vital part of portfolio management and construction. Holding a large variety of equities and other asset classes across the entirety of the investment spectrum will provide an investor with the ability to mitigate a certain amount of risk.
Diversification is the key to risk mitigation. However, the degree to which one diversifies their portfolio is paramount in achieving proper risk mitigation. Solely diversifying across equities isn’t enough as you are left with significant systematic risk. This is why it’s important to diversify among a number of different asset classes including alternative investments such as hedge funds.
One of the best ways to mitigate risk is including hedge fund strategies in a portfolio. The value of using hedge funds to diversify is often understated. By adding hedge funds to an investment portfolio an investor can diversify away specific risk. Hedge Funds have very unique risk and return profiles compared to other investments, and generally a have low correlation to traditional asset classes.
Hedge funds can significantly improve the efficient frontier of an investment portfolio by following specific strategies set out to produce substantially higher returns with much lower risk. Hedge funds implement a broad range of approaches and strategies, but a subset have certain risk mitigation characteristics. HFR’s Risk Mitigation Index selects a number of funds that exhibit these characteristics.
For more information on Risk Mitigation strategies please contact INDICES@HFR.COM
Examples of HFR Indices that employ Risk Mitigation strategies are listed below:
Risk Mitigation
| Index Name | ROR | Index Value | YTD | LAST 12M | LAST 36M | LAST 60M | |
|---|---|---|---|---|---|---|---|
| HFRI FOF: Risk Mitigation (S) Index › | 0.62% | 2502.35 | -1.17% | -1.25% | 4.22% | 5.01% | |
| HFR Bank Systematic Risk Premia Equity Volatility Index | 0.85% | 357.29 | 1.77% | -10.70% | -14.32% | -14.83% | |
| HFR Bank Systematic Risk Premia Multi-Asset Index | -0.10% | 1824.26 | 8.80% | -5.93% | 6.68% | 6.09% | |
| HFRI 500 Macro Index › | 0.63% | 1473.66 | -1.20% | -1.16% | 7.49% | 5.59% | |
| HFRI 500 RV: Volatility Index › | 0.54% | 1156.96 | -0.03% | -0.33% | 3.34% | 3.75% |