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Hawaii hedge fund

AlPha from alOha? Honolulu has the highest Sharpe ratio for city climate in the world. It is not so much temperature but variability of temperature that matters. When people visit Hawaii it‘s certain they won't require a coat or suffer heatstroke. There is a lesson for investors: averages count but consistency, low volatility and limited downside matter more. Don't freeze in or get burnt by risky long only.

Passive index fund = Siberia, good hedge fund = Hawaii. There are Siberian tourists in Hawaii but no Hawaiian tourists in Siberia. But traditional investors often visit Siberian bear markets. Instead I prefer reliable performance. More people in the northern hemisphere wish they were in Hawaii in January than July. They don't like bear markets either so why do they invest in long only? Invest in good hedge funds since we don't know when the economic winter will hit.

Honolulu climate has a small range and standard deviation whilst places elsewhere usually have very high volatility during a year. Honolulu's warmth Sharpe ratio is vastly superior. The worst city climate Sharpe ratio belongs to Yakutsk. Looking at downside risk, Honolulu has never recorded a temperature below 50 degrees Fahrenheit so its Sortino and Omega ratios are INFINITY.

Good hedge funds may or may not match stock market returns. But they outperform equities on a depth of drawdown and return on risk basis. Their performance, volatility and control of the downside are a better fit for conservative investors who value consistency. It is how a managers perform during a cold winter not sunny summer that matters. Construct portfolios and invest in funds that deliver absolute returns with the RELIABILITY of Hawaiian weather.

By Veryan Allen Creative Commons License

This work is licensed under the Creative Commons Full Attribution, Non-Commercial, No Derivative Works 3.0 License

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