Nadia Papagiannis, Director of Alternative Investment Strategy for Global Third Party Distribution at Goldman Sachs Asset Management, looked at the performances of HFRI indices – broadly constructed indices designed to capture the breadth of hedge fund performance trends, and found that the investable index with a smaller number of funds underperformed the non-investable hedge fund index, which includes a much broader universe, “suggesting the better performing funds may not be currently open to investment and/or there is some performance bias in this HFRI index.”

Moreover, the disparity in performances among various hedge funds makes it hard for individual investors to pick the winners from the losers.

“A large universe of funds in the alternatives investment universe characterized by high historical performance dispersion and low performance persistence makes manager selection challenging,” Papagiannis added.

Alternatively, Zahid Nakhooda, Vice President of ETF Product Specialist at Goldman Sachs Assest Management, pointed to the recently launched Goldman Sachs Hedge Industry VIP ETF (NYSEArca: GVIP) as an easy-to-use alternative to access some of the “Very-Important-Positions” among expert hedge funders. The ETF is comprised of U.S.-listed stocks that most often appear in the top 10 holdings of over 650 fundamentally-driven hedge fund managers, managing $700 billion in equity, which may help investors to more confidently navigate the changing conditions ahead.

“The combination of a solid macro landscape and a fluid policy outlook reminds us that disciplined investing – meaning portfolio design that anticipates change – is essential during periods of transition,” Tse said.

To identify this group of most important positions among hedge fund managers, Goldman Sachs starts with a view of their holdings through regulatory filings that many hedge funds are required to complete on a quarterly basis, called “13F”s – the reports include number of shares and total market value of a manager’s long holdings in applicable securities on the last day of each calendar quarter and must be filed with the SEC within 45 days of the end of a calendar quarter.

GVIP provides investors with an investment that expresses both long and short views to access dynamic market themes and to hedge out beta exposure while equitizing cash to minimize drag.

Financial advisors who want to learn more about a hedge fund replication strategy can watch the webcast here on demand.