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Did you know you can invest in volatility? Some hedge funds are finding it quite profitable this year.

Hedge funds that profit from turbulence in the financial markets are beating stock, bond and commodity investments for the first time in five years.

Volatility hedge funds returned 7.3 percent this year through August, according to the Newedge Volatility Trading Index, which started in 2003. Hedge funds overall lost 4.8 percent in the same period, according to Hedge Fund Research Inc. in Chicago.

The size of daily fluctuations have increased this year.

The S&P 500 fluctuated by more than 1 percent on 71 trading days this year, the most since 2003 and exceeding the 61-day annual average since 1928, said Howard Silverblatt, an analyst at S&P in New York. The index may have its most volatile year since 2002, when there were 125 swings of more than 1 percent.

I wouldn't say we're in a highly volatile environment, but that volatility has returned to normal after a period of very low volatility.

Posted by edelfenbein at September 9, 2008 12:35 PM