
I was chatting to an acquaintance last week, and he said that he had put his money into a hedge fund, not Vestact, because the fund's returns have been a lot less volatile. He was happy to sacrifice gains, and pay higher fees, in exchange for downside protection and less volatility.
Hedge funds have different strategies, but many engage in hedging activities which cost money. Think of it as taking out insurance against a market fall, but that insurance will cost you. Effectively, the downside is limited but it hampers the upside potential too.
That strategy is great if you are a short-term investor, where you aren't in a position to take a big short term hit. If you are a long-term investor, with a time horizon of over 5 years, does it really matter what happens today? Vestact's returns have been volatile, but well worth it for long-term clients. Here are our returns, after fees, for the last five years: 45.2%, 25.4%, -35.8%, 51.8%, 40.9%. So far this year we are up 4.1%.
If you don't like volatility, instead of sacrificing very real long-term gains by implementing hedging strategies, just look at your statement less often. Taking this example to the extreme, imagine investing in early 2020 and then only looking at your statement at the end of 2024. You would have been ecstatic about the gains, and none the wiser about the volatile periods.
Volatility is a feature of the stock market, not a bug. Don't waste money trying to fight it.