Hedge fund portfolio selection with fund characteristics

This paper examines hedge fund portfolio selection approaches in isolation and the context of an investor’s overall portfolio. Characteristics-based portfolios that minimize risk delivers superior out-of-sample performance. For instance, a minimum variance tilting toward small funds with high alpha strategy distinctiveness index low systematic annualized Sharpe ratio 2.03 maximum drawdown 5.20%. Investors realize diversification benefits by shifting portion their wealth from 60 to 40 equity-bond characteristics-based recognize attractiveness portfolios, but do not target flows enough erode