Homemade Sector Hedge Funds: Can Investors Replicate the Returns Without Paying the Fees?

This article examines the monthly returns of sector exchange-traded funds (ETFs) during the period of January 1999 to December 2005 to determine whether employing a momentum/oscillating-based trading strategy (relative strength index) could yield returns comparable to those of similar hedge fund ind...

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Bibliographic Details
Published in:Journal of Investing 2007-12, Vol.16 (4), p.175-189
Main Authors: Newsome, Lorenzo, Turner, Pamela A.
Format: Article
Language:English
Subjects:
Abnormal returns
Asset acquisitions
Efficient markets
Exchange traded funds
Hedge funds
Investment policy
Investments
Investors
Margin accounts
Margin requirements
Mutual funds
Return on investment
Securities markets
Stock exchanges
Studies
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Summary:This article examines the monthly returns of sector exchange-traded funds (ETFs) during the period of January 1999 to December 2005 to determine whether employing a momentum/oscillating-based trading strategy (relative strength index) could yield returns comparable to those of similar hedge fund indices. The sectors used are energy, healthcare, financials, and technology. There is no statistical difference in mean returns for either of the four sector ETFs and the hedge fund indices. However, there is substantial economic difference in the hedge fund index returns and those of the ETFs using the relative strength index (RSI). Based on the RSI strategies, investors would not be able to replicate hedge fund returns. [PUBLICATION ABSTRACT]
ISSN:1068-0896
2168-8613
DOI:10.3905/joi.2007.698990