I make the case for alternatives in institutional portfolios. Far from reducing exposure to hedge funds, investors should be increasing it. Simple portfolios and dramatic results make the point.
Applying a linear trend line to the value added monthly index gives a better estimate of returns than compound annual growth rate. It differentiates between different return distributions and is less affected by noise.
Focusing on CAGR is a mistake unless you are aware of its limitations. We take a closer look at Compound Annual Growth Rate, to see what it leaves out, and how it can be affected by chance.