CHART OF THE DAY: Hedge Funds Look A Lot Like Cheap Index Funds These Days

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Morgan Stanley’s Adam Parker has an update to a chart we’ve seen a lot lately.

It’s the correlation between the the equity hedge fund index and the S&P 500.

As you can see, the correlation has been getting closer and closer to 1, which means that they’re increasingly moving hand-in-hand.

However, hedge funds are notorious for charging extremely high fees.

Assuming this relationship holds, it’s probably a lot smarter to just buy a cheap mutual fund indexed to the S&P 500 like the Vanguard 500.

Chart of the Day shows the correlation of HFRI Hedge Index With S&P 500, Rolling 60 Months Jan 1990 to Dec 2012

Photo: Factset, Morgan Stanley Research

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