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Liquid ETFs can be “a proxy for opaque hedge funds”, says MPI’s Markov

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Markov Processes International, an independent FinTech provider of software and services for analysing investment performance and risk, has released eight-year performance data for its MPI Eurekahedge 50 Tracker Index, which it says indicates that its basket of liquid, retail exchange-traded funds can deliver the performance of a diversified portfolio of institutional-quality hedge funds.

Markov Processes International (MPI), an independent FinTech provider of software and services for analysing investment performance and risk, has released eight-year performance data for its MPI Eurekahedge 50 Tracker Index which it says indicates that its basket of liquid, retail exchange-traded funds can deliver the performance of a diversified portfolio of institutional-quality hedge funds.

In 2014, MPI partnered with Eurekahedge to create an index of elite hedge funds that represented the diversified portfolio typical of large institutional investors. MPI created screening criteria to deliver a portfolio of the 50 largest hedge funds, allocated among five major strategies and reconstituted on an annual basis. The result was the Eurekahedge 50 Index (EHFI400), a concentrated, institutional-quality benchmark launched in November 2014. 

The index was designed to represent the typical diversified portfolio an institutional investment team might select. But it also sought to overcome problems that plague other hedge fund benchmarks and indices, such as strategy bias and misclassification of strategies. Along with the Eurekahedge 50, MPI also launched an investible tracker, the MPI Eurekahedge 50 Tracker Index (EHFI401). The tracker comprises anywhere between 25 to 30 liquid ETFs and is priced daily and updated monthly.

Since inception on 1 November, 2014, the MPI EH50 Tracker has performed in line with the Eurekahedge 50 Index, with a low tracking error of 2.5%, similar volatility of 5% and consistent outperformance by 1.5% per year. Year-to-date through October 2022, the MPI Eurekahedge 50 Tracker investable index tracker is down -1.8%, compared with a -2.5% return for the hedge fund index.

Michael Markov, co-founder and Chief Executive Officer of MPI, said: “We are excited about these results for two reasons. For one thing, we believe we have achieved a solid benchmark off which hedge fund and investors’ in hedge funds performance should be judged. Second, there are profound implications for investors, since we have shown that transparent, liquid ETFs can indeed be a proxy for opaque hedge funds.”

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