Including crypto with a hedge fund allocation

Sources: Morningstar Direct and Wells Fargo Investment Institute. Analysis uses monthly data from September 1, 2017 to September 30, 2021. Hedge funds = HFRI Fund Weighted Composite Index. Cryptocurrencies (crypto) = Bloomberg Galaxy Crypto Index. Index returns do not represent investment performance or the results of actual trading. Index returns reflect general market results, assume the reinvestment of dividends and other distributions and do not reflect deduction for fees, expenses, or taxes applicable to an actual investment. Unlike most asset class Indexes, HFR Index returns are net of all fees. Because the HFR Indexes are calculated based on information that is voluntarily provided actual returns may be lower than those reported. An index is unmanaged and not available for direct investment. Hypothetical and past performance is no guarantee of future results. Standard deviation is a measure of the volatility of returns. The higher the standard deviation, the greater volatility has been. Please see the “Index Definitions and Asset Class Risk Disclosures” link above for the definitions of the indexes.

Alternative investments, such as hedge funds, are not appropriate for all investors and are only open to accredited or qualified investors within the meaning of the U.S. securities laws. They are speculative and involve a high degree of risk that is appropriate only for those investors who have the financial sophistication and expertise to evaluate the merits and risks of an investment in a fund and for which the fund does not represent a complete investment program.

Key Takeaways

  • WFII considers cryptocurrencies to be alternative investments, specifically within the Macro hedge fund strategy.
  • It is important to understand how an allocation to cryptocurrencies may affect a more “traditional” hedge fund allocation.
  • Incorporating a small amount of cryptocurrencies into a hedge fund allocation increased return while only increasing maximum drawdown slightly.