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From Christine Gaylican, Opalesque Asia:

Taking into account the good performance of Australian hedge funds in spite a relatively tough year, independent research group Australia Fund Monitors (AFM) picked the best out of the 200 funds it oversees.

To thresh out what makes these funds stand out in the industry, AFM said in a November-09 report (Source) "the best of the best" funds, they used 18 quantitative equally weighted, key performance indicators taken over at least three years, including measures of upside performance, downside risk, consistency of returns and volatility.

AFM said it also chose those with a three-year track record and even segregated asset classes to ensure they "are not comparing apples with oranges."

Based on these categories, the research group compared the performance of these model portfolio funds with the ASX and the AFM indices in the last three years. It showed that these funds, which are locally managed and domiciled equity funds had an annualised return of 14.43%, a standard deviation of 5.53%, a Sharpe ratio of 1.45 and a maximum drawdown of -5.65%.

Over the same three-year period, the ASX200 returned a negative -3.32%, a drawdown of over 50% at one stage, a negative Sharpe ratio, and volatility of over 17%.

ASM pointed out that the probable secret to these and other top performing funds "is an aversion to risk......................

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