The HFR Distressed Securities index outperforms both stocks and bonds absolutely, with higher Sharpe ratios than either. It is also poorly correlated with the stock market, so it would diversify a stock portfolio. Private equity has historically delivered better returns than stocks, but it is highly correlated with the stock market, and Sharpe ratios can be quite high. Direct investments in real estate generally provide returns lower than those of stocks, though they do provide substantial diversification benefits. (Study session 13, LOS 31.f) |
