What is the main purpose of tracking portfolios?

The main purpose of tracking portfolios lies in the assessment and management of investment performance over time, which encompasses a variety of aspects, including measuring returns, understanding market trends, and making informed decisions about asset allocation. In the context of this question, tracking portfolios is especially crucial for benchmarking and comparative analysis, such as evaluating the performance of hedge funds with similar investment styles.

By monitoring these portfolios, investors can gain insights into how various funds perform against each other, identifying factors that contribute to outperformance or underperformance. This comparative approach facilitates strategic decision-making and informs investors about the efficacy of various investment strategies within the same market segment, enhancing the overall investment strategy tailored to specific objectives.

While enhancing market awareness, identifying potential investment opportunities, and minimizing risk are important aspects of portfolio management, the primary function of tracking portfolios in this context is to provide a framework for comparing similar investment vehicles, particularly hedge funds. This enables investors to make better-informed decisions based on comparative performance metrics.