Fund mix delivers potent cocktail

Mixing index funds and hedge funds can deliver a stronger kick than traditional active fund management on the rocks.

Index fund and hedge fund managers believe that an investment strategy combining their products, and excluding traditional active fund managers, is optimal but their consensus comes from radically different points of view.

For index fund managers, hedge funds and other alternative investments such as direct equity funds or small-cap funds can bolster a pension funds returns. Vincent Duhamel, CEO at State Street Global Advisors Asia, notes these alternative strategies also complement one of the key pillars of index investing diversification. He also acknowledges that for some asset classes, such as small-cap stocks, indexing is an inferior strategy.

For hedge fund managers, indexation offers two advantages. First, they say the combination of indexing and...

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