Eurekahedge recently launched a suite of new indices, under the name Mizuho-Eurekahedge Index, which are asset weighted and follow a new and unique methodology. In this report we highlight the key features of this set of indices, analyse the risk-return profile and show how the different statistical properties and analysis can be of use to hedge fund investors.
Key attributes of the methodology
Asset weighted to provide a more representative market portfolio
All hedge fund’s underlying local currencies converted to USD on a monthly basis along with 3 additional ‘currency hedged’ indices.
Minimum AUM levels eliminate smaller funds that will not have a significant impact on the asset flows of the industry
The new indices account for backfill bias by only taking into consideration the data of funds after they have listed on the Eurekahedge database – including all historical returns.
The new indices account for survivorship bias by including historical performance of all the funds meeting the index criteria at each point in time even if the fund do not exist any more.
Figure 1 displays the Mizuho-Eurekahedge Index and the Dow Jones World Index and Table 1 shows the corresponding risk return metrics.
Figure 1: Mizuho-Eurekahedge Index vs DJ World Index
When compared to the underlying equity markets1 the Mizuho-Eurekahedge Index has witnessed better performance over the last six and a half years, with less than half the volatility and a low beta (correlation to the markets). Total return for the index stands at …