Should hedge funds deviate from the benchmark?

We examine the relationship between deviating from benchmark and subsequent performance for hedge funds. propose a simple new measure of deviations, termed dispersion contribution index, which is based on fund's return-distance mean return same-style find that funds deviate most their tend to underperform relative less distinctive peers, after accounting risk profile various fund characteristics. This underperformance stems primarily higher exposure associated with pursuing unique strategy. Our results are indicative shifting by managers attempting maximize value compensation contracts.