Hedge Fund Drift Happens, Dude

According to a new paper, while many hedge funds exhibit style drift — following a different strategy than advertised — equity hedge funds are the kings of drift:

Whereas some fund categories such as managed futures are largely consistent in their self declared strategies, others, especially so called “equity hedge” funds display no or very limited return similarities. Furthermore, we also find evidence of fund managers performing undisclosed changes of their trading style over time. Those funds which misclassified themselves once are particularly likely to change their trading style again. Although style self-declaration can therefore be quite misleading, our results indicate that hedge funds do not misdeclare their style strategically to improve their relative performance.

Translation: Equity hedge funds change styles all the time, they don’t advertise the change, and they don’t do it in a planned way to screw up competitors. Drift just happens, dude.


  1. Style drift is when a trader is flexible about their trading strategy, and it doesn’t work. Nimble is when a trader is flexible about their trading strategy and it works.
    Hedge fund managers are supposed to make money. They are supposed to be flexible and to do what it takes. As long as they do not venture where they do not have the experience or expertise.
    If they do have the experience and expertise, they should be free to venture into those trades and strategies which they think are good bets.
    Many investors, even professional ones, fail to give their managers sufficient slack to make money. They are quick to point out style drift and are likely to pull the rug out from under the trader.