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The Journal of Wealth Management

The Journal of Wealth Management

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Primary Article

Long/Short Equity Hedge Fund Investing

Are Sector Specialists Better Than Generalists?

Yulin Frank Yao, Brian Clifford and Rodney Berens
The Journal of Wealth Management Summer 2004, 7 (1) 35-43; DOI: https://doi.org/10.3905/jwm.2004.412353
Yulin Frank Yao
Was with Berens Capital Management, LLC while he co-submitted this article. Currently he is vice president and chief investment officer at Huaan Asset Management Ltd., in Shanghai, China.
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  • For correspondence: frank.yao@huaan.com.cn
Brian Clifford
A Partner at Berens Capital Management, LLC, in New York, NY.
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  • For correspondence: brian@berenscapital.com
Rodney Berens
A founding partner at Berens Capital Management, LLC, in New York, NY.
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  • For correspondence: rod@berenscapital.com
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Abstract

Investors in long/short equity hedge funds frequently debate the relative merits of generalist and sector specialist hedge fund managers. Most of this debate has been anecdotal. Conventional wisdom favors specialists for their focus, dedication, and expertise in a single sector. Based on an empirical study, the authors found that sector specialists as a whole are not better off than generalists in terms of their exposure to systematic risks. After adjusting for volatility, the percentage of funds with positive performance Graham-Harvey measures is almost identical for generalists and sector specialists. They also present evidence that skilled managers are not an overwhelming majority within their sample of the long/short hedge fund managers. Finally, the study suggests that the more extreme the market dislocation, the lower the diversification benefits that average hedge fund managers can offer. On average, many sector specialists have higher correlation to relevant benchmarks than generalists in extreme market dislocations. However, all strategies fail to provide adequate downside protection under the worst market conditions. Furthermore, after accounting for market activities (such as volatility) in a specified market, their study shows, using various performance measures, that there is no major significant difference between generalists and sector specialists when observed as a group.

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The Journal of Wealth Management
Vol. 7, Issue 1
Summer 2004
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Long/Short Equity Hedge Fund Investing
Yulin Frank Yao, Brian Clifford, Rodney Berens
The Journal of Wealth Management Apr 2004, 7 (1) 35-43; DOI: 10.3905/jwm.2004.412353

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Long/Short Equity Hedge Fund Investing
Yulin Frank Yao, Brian Clifford, Rodney Berens
The Journal of Wealth Management Apr 2004, 7 (1) 35-43; DOI: 10.3905/jwm.2004.412353
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