Question #28
Reading: Reading 34 Hedge Fund Strategies
PDF File: Reading 34 Hedge Fund Strategies.pdf
Page: 11
Status: Correct
Correct Answer: B
Question
A traditional 60% equity/40% fixed income allocation was adjusted by adding a hedge fund to the portfolio, resulting in the following allocation: 48% equity/32% fixed income/20% hedge fund. There was no reduction in the standard deviation of the portfolio after the addition of the hedge fund. The hedge fund most likely added was:
Answer Choices:
A. a dedicated short bias fund
B. a distressed securities fund
C. a bear market equity fund
Explanation
Distressed securities investing involves long positions that are frequently large successes
or failures, thus limiting their ability to reduce standard deviation. The other strategies
reflect less exposure to long positions and would likely reduce standard deviation.