"Even with the recent rally in the most popular long positions, the average hedge fund has returned just 3% YTD, lagging the S&P 500 for the eighth year in a row. Many active managers continue to struggle in 2016, with the average hedge fund (+3%) and large-cap core mutual fund (+7%) lagging the S&P 500. Among hedge fund styles, although most have posted similar returns, event-driven funds have fared best (+5%) while equity long/short funds trail (+2%)."
The problem for individual investors is the “trap” that is currently being laid between the appearance of strong market dynamics against the backdrop of weak economic and market fundamentals. Ignoring the last two to chase the former has historically not worked out well.
Gold buying surged to record levels in H1, 2016 due to increasing concerns about the political, economic and monetary outlook. In particular, deepening concerns about the negative interest rate money "madness" of central banks today.
Maybe the "smart money" knows the real numbers are now so far from the central planners' rigged statistics that the carefully constructed narrative of "recovery" is doomed to an unwelcome intrusion of reality.
"In the US, muted growth will be offset by P/E multiple contraction, suggesting a flat US equity market in the next 12 months. Stock valuations stand at historical extremes. The median trades at a forward P/E of 18.2x, ranking in the 98th percentile since 1976. Rising wage inflation will weigh on profit margins and limit further P/E expansion. Expectations of additional Fed tightening by year-end represent another headwind to higher equity prices"
In the second quarter, the Swiss National Bank added $7.3 billion to its US equity portfolio, and according to its just filed 13-F, is now long a record $61.8 billion in US stocks, up from $54.5 billion a month ago. In fact, rising from $41.3 billion in total US stock holdings as of December 2015, this means that the Swiss central bank increased its total US holdings by a record 50% in the first half of 2016.
Active managers are now more exposed to beta than they have been since 2008. And with the rally off of February’s lows driven largely by cyclical reflation plays, cyclical vs. defensive sector exposure is now the highest we have seen since 2012.
July may have been a good month for the S&P 500, which is up over 3.5%, generating more than half of the S&P's entire YTD 2016 return (6.4%) in just one month, but it was another painful month for the active investing "smart money" - of the roughly 40 (rotating) marquee names in our hedge fund tracking universe, only one is beating the broader market this month.
The slow motion LBO of the market by the market continues, as more debt is issued fund stock buybacks and push stocks briefly, and artificially, higher, even as corporations lever themselves up to all time highs now that the even the merest risk of rising rates has been buried for years to come.