Multistrategy funds grow, while returns bifurcate


Diversification provides a cheaper alternative to funds of funds






It may turn out that 2006 will be the year of the multistrategy fund, a growing subsector of the hedge fund universe whose returns are theoretically less tied to the performance of any given market benchmark and more dependent on a fund's asset-allocation mix.

Had theory not crashed into reality, that might have been the case for 2005. However, the fact is that this year many multistrategy funds remained heavily allocated to arbitrage strategies, which performed abysmally with the convertible-fund median sinking by - 1.8% and