%0 Journal Article %A Marc J. Sharpe %T Constructing the Optimal Hedge Fund of Funds %D 1999 %R 10.3905/jwm.1999.320348 %J The Journal of Wealth Management %P 35-43 %V 2 %N 1 %X After having a proposed definition of what constitutes a hedge fund, the author discusses the various kinds of hedge fund strategies. In particular, he suggests that the principal areas of differentiation between various hedge funds are strategies or styles, risk and return objectives, various compensation structures, and the availability of information. He then reviews historical data and offers an analysis of the major sources of risk and return. He concludes that an investor seeking to select a particular hedge fund for inclusion in an “optimal” hedge fund of funds needs to focus on three key issues: the particular investment strategy used by the fund's manager; how the manager's strategy can be expected to perform in the existing (and expected) market environment; and how a combination of strategies will provide diversification and minimize volatility in the portfolio. %U https://jwm.pm-research.com/content/iijwealthmgmt/2/1/35.full.pdf