Despite investors' displeasure over high fees and a skepticism of whether the asset class is worth the effort, hedge funds have done their job protecting the downside. Over the trailing three- and five-year periods, the HFRI Fund Weighted Composite index captured approximately 34% of down markets relative to the MSCI ACWI IMI, while capturing 43% of positive returns. Equity hedge strategies saw both the three- and five-year capture ratios increase relative to their market direction, as the index has a higher correlation to equity markets. Equity-focused strategies were less efficient when measured against the S&P 500 index; they participated in about 71% of down markets and 48% of up markets. Global macro funds' market capture was similar to that of the broad industry index when measured against the global index, but like equity funds, less effective against large-cap U.S. equities.
Risk over the three- and five-year periods was approximately one-third of that of both indexes for the broad hedge fund, fund-of-fund and macro indexes, and half of that for the equity hedge index relative to the market indexes.