Hedge funds will add diversity

Gartmore predicts hedge funds will underperform equity markets in coming years but believes investors should still buy them for the sake of diversification. Stephen Attenborough, head of European sales for fund of hedge funds at Gartmore, said alternatives exhibit a different type of risk from equity-based vehicles. Attenborough pointed to Harry Markowitz's Modern Portfolio theory which states it is possible to increase levels of return at the same time as reducing risks. Holding asset classes which have a low correlation to each other improves diversification and therefore decreases r...