Hedge Funds Trading Only Volatility Becoming More Appealing, Reuters Reports

As investors continue to fortify their portfolios against uncertain market forecasts, hedge funds that trade exclusively volatility can expect increased investor interest, a recent Reuters report says. But investors looking for such funds may find themselves out of luck because

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As investors continue to fortify their portfolios against uncertain market forecasts, hedge funds that trade exclusively volatility can expect increased investor interest, a recent Reuters report says.

But investors looking for such funds may find themselves out of luck because purely volatility-trading hedge funds have all but vanished from marketplaces.

Estimates say that fewer than 10 of the some 8,000 hedge funds in existence today trade volatility exclusively.

The vast majority of these hedge funds found it too difficult to succeed after 2003 when stock market volatility slipped. Many existing and new volatility-focused hedge funds were simply forced to shut their doors, the report says.

However, while interest in the volatility-only approach remains because some investors would prefer a more active investment, experts say the expertise needed to trade purely on volatility has diminished as multi-strategy funds have elbowed their way in on the approach, using volatility as only one of many different approaches.

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