Hedge Funds and ETFs

Brokers Looking to Replace Hedge Funds with ETFs

Brokers are trying to lure investors away from hedge funds by pushing exchange-traded funds (ETFs). The main advantage to hedge fund investors is that ETFs allow investors to easily withdraw money from the fund, whereas many hedge funds had agreements with limited partners barring quick redemptions when the fund's performance slides. According to Andrew Lo, exchange-traded funds are a useful alternative to hedge funds which is, "perfectly consistent with the drive towards better diversification and great liquidity."

Traditionally, Barclays and other firms allocated wealthy clients' money among private money managers, hedge funds and other exclusive products. But with the proliferation of ETFs of all varieties -- and the poor performance of many high-priced money managers during last year's turmoil -- simpler products are gaining in popularity.

"There are a lot more ETFs in different asset classes than they had been in the past, and they're becoming more nuanced," said Sean Crawford, portfolio manager of the new strategy at Barclays Wealth, which oversees $221 billion (135.4 billion pounds) for clients. "It's become a pretty compelling investment idea."

There's plenty of money waiting on the sidelines for a better investment mousetrap. As markets crashed last year, investors became increasingly disenchanted with hedge funds. They pulled about $800 billion out of such investments between July 1, 2008, and June 30, 2009, according to research firm HedgeFund.net, which tracks the industry. Source

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Tags: hedge funds, exchange traded funds, etfs, hedge fund alternatives, investing in alternative assets, traditional investments, diversifying portfolio, portfolio management