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Paying 2 And 20 For What Again? Hedge Funds Underperform Stocks For Third Year Running

Tyler Durden's picture




 

For the third year in a row, hedge funds will underperform the market, this time by nearly 50%, having returned 5.15% through the end of November (with just equity funds +5.20% YTD), less than half what the MSCI World has returned. And while one can make the argument (not correctly) that a manager has to beat only a given benchmark, and not the overall market, the reality is that for virtually all LPs, seeing their money return well below the S&P not for one, not two, but for three years running, is about the last thing they need before they make a decision to fax in that redemption form.

Which also explains the quarter end levered beta-chasing now adopted by virtually every asset manager as gospel. The only category beating the overall market? Credit, at +11.67%. Hopefully this will explain to all those equity-pitching "experts" why frontrunning the Fed, by everyone including retail, is now the only game in town, and is funded by equity outflows (which just saw their 21st consecutive week of outflows YTD). The worst performing funds: CTA and Managed Futures. Time to shut down the "Superfund"? Finally looking at individual HF winners through the week ending December 14, the only question is whether Paulson Disadvantage Minus will end the year as the second or third worst performer. Sadly, it will hardly be able to recreated its whopping -52.64% from 2011 even if it tried in the next 2 weeks.

Latest HSBC report:

 

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Thu, 12/13/2012 - 17:47 | 3060952 icanhasbailout
icanhasbailout's picture

If they're used as hedges like they are supposed to be, this would be good news - it would mean the main position did better.

Thu, 12/13/2012 - 18:09 | 3060992 bagehot99
bagehot99's picture

Yeah. They're not used to hedge. They're used to keep huge amounts of money under the radar.

Rather than a financial hedge, they perform as a garden hedge, with massive dollops of cash hidden behind it.

Thu, 12/13/2012 - 18:56 | 3061080 ACP
ACP's picture

2...20...or 200 for a vacant lot in Detroit:

http://detroit.cbslocal.com/2012/12/13/detroit-gives-away-lots-for-200-to-reduce-blight/

Or course, the cost of maintaining ballistic windows, walls as well as the daily expenses for ammunition may take a toll.

Thu, 12/13/2012 - 21:07 | 3061439 Go Tribe
Go Tribe's picture

The should relocate the White House to Detroit. A more fitting representation of our government cannot be found.

Thu, 12/13/2012 - 18:23 | 3060960 francis_sawyer
francis_sawyer's picture

The Kyle Bass nickle collection is doing better than most hedgies... (& tax free)...

Thu, 12/13/2012 - 17:52 | 3060962 Toolshed
Toolshed's picture

Gotta love the source of the chart - Hedge Fund Intelligence. Isn't that like military intelligence - an oxymoron.

Thu, 12/13/2012 - 21:09 | 3061442 Go Tribe
Go Tribe's picture

So I outperformed the average hedge fund six-fold this year and I didn't even have to buy a sharkskin suit. New Yorkers must be the stupidest people around.

Thu, 12/13/2012 - 17:58 | 3060973 babylon15
babylon15's picture

Nothing like $16 trillion in central bank intervention to shake things up a little bit!

Thu, 12/13/2012 - 17:59 | 3060975 knukles
knukles's picture

Hah ha ha ha
And once again, some of the best preforming sectors come from the bond market....

Thu, 12/13/2012 - 18:04 | 3060982 buzzsaw99
buzzsaw99's picture

thank you for noticing knukles

Thu, 12/13/2012 - 18:00 | 3060976 buzzsaw99
buzzsaw99's picture

 

 

2011 Bottom 20:

Paulson

Paulson

Paulson

Paulson

Major holdings:

Gold

Gold Miners

More Gold

Even more gold

Good luck suckers!

Thu, 12/13/2012 - 18:02 | 3060981 Catullus
Catullus's picture

Think "yeah my Pimco Total Return Fund in my company 401k has been killin it" is a winner at a cocktail party? You savvy son of a bitch.

Thu, 12/13/2012 - 19:49 | 3061223 Tippoo Sultan
Tippoo Sultan's picture

+1

Thu, 12/13/2012 - 18:03 | 3060984 Ness.
Ness.'s picture

 

FT Person of the Year: Mario Draghi

 

That is all.

 

Thu, 12/13/2012 - 18:21 | 3061019 MyBrothersKeeper
MyBrothersKeeper's picture

Part of the hedge fund fail is simple.....most base their investment on fundamentals.  Well the divergence between fundamentals and what has become the existing markets has become so large they'd be much better off following the "buy and hold" at all costs crowd.  The words hedge funds is a misnomer....a hedge fund in today's terms are high net worth investors allowing these managers to maximize returns without restriction.  It is not criminal per se just the lexicon has not kept up with reality. Hedge funds have not really been "hedge funds" for quite some time. There are many more instruments available for actually hedging a position or portfolio than earlier times.

Thu, 12/13/2012 - 19:57 | 3061244 Kreditanstalt
Kreditanstalt's picture

The Fed and the governments can only suppress fundamentals and promote rigged markets for so long...and then it stops.  But when?  How do you combat a maniac printer whose customers will buy all he can produce and then some?

Thu, 12/13/2012 - 18:25 | 3061025 swissaustrian
swissaustrian's picture

Most managed futures/CTAs can't make money in trendless markets. The rise of HFT has affected them, too.

MFs/CTAs will shine when we get a bigger stock market crash. That's what they're designed for and that's when they've shown to be great balacing factors in a diversified portfolio.

However, about 10% of all managed futures funds have still returned magnificently (15+%) over the last year.

Thu, 12/13/2012 - 18:25 | 3061028 tbone654
tbone654's picture

So if I continue to triple my money every three months, it's obviously not because I let someone manage my money for me, correct?

Thu, 12/13/2012 - 18:33 | 3061043 blunderdog
blunderdog's picture

If you don't pay those hedge funds good money, they won't attract the best talent.

Thu, 12/13/2012 - 18:34 | 3061046 long-shorty
long-shorty's picture

"And while one can make the argument (not correctly) that a manager has to beat only a given benchmark, and not the overall market, the reality is that for virtually all LPs, seeing their money return well below the S&P not for one, not two, but for three years running, is about the last thing they need before they make a decision to fax in that redemption form."

Do you realize that when you say things that stupid and clueless it greatly reduces your credibility?

Thu, 12/13/2012 - 18:56 | 3061081 jballz
jballz's picture

 

What is stupid and clueless?

I'm just a dumb trader but the only inaccuracy I can find in that statement is the notion that investors will ask for redemptions from a losing hedge fund.

A few do I suppose, but since it is by and large other people's money and steering money to funds is how steerers get paid, it is usually not terribly important for the fund to actually perform.

It's not about the 20, bitches...it's about that sweet sweet 2.

Thu, 12/13/2012 - 18:47 | 3061066 Freddie
Freddie's picture

Paulson - I guess w/o insider information from Goldman - your funds suck.

Thu, 12/13/2012 - 21:18 | 3061470 Go Tribe
Go Tribe's picture

I'd like to play Paulson at poker, because he obviously doesn't know when to fold em. After 2008 he should've just retired and gone fishing.

Thu, 12/13/2012 - 18:57 | 3061082 Robslob
Robslob's picture

 

Tyler you didn't get the memo?

Rich people don't mind losing money to other rich people.

Rich people hate losing money to poor people (entitlements).

Simple?

Thu, 12/13/2012 - 22:34 | 3061694 blunderdog
blunderdog's picture

It's 'cause when you lose money to other rich people, it just doesn't fuckin' matter.

Thu, 12/13/2012 - 19:08 | 3061103 RobotTrader
RobotTrader's picture

Everybody and their brother who runs a managed fund has attempted to:

 

1) Short the broad market

2) Short consumer stocks

3) Short the dollar

4) Short U.S. Treasuries

5) Short muni-bonds

6) Long gold and Peak Oil plays

 

All turned out to be disasterous.

If they only loaded up on the "Glam" stocks like LULU, ULTA, AAPL, PNRA, etc.  Even if they failed to sell tops and gotten blown up by NFLX, CMG, etc. they still would have been way ahead of the S & P 500 since the majority of these are still up 600% in 3 years despite the corrections.

Thu, 12/13/2012 - 19:48 | 3061222 unununium
unununium's picture

Look what the cat dragged in.  Please at least return to the chick pix this go-round.

Thu, 12/13/2012 - 19:53 | 3061235 Kreditanstalt
Kreditanstalt's picture

The new money gravitates to the same old "dash-for-trash"...

Thu, 12/13/2012 - 20:19 | 3061283 paulbain
paulbain's picture

 

 

 

RobotTrader wrote:

Everybody and their brother who runs a managed fund has attempted to:

 

1) Short the broad market

2) Short consumer stocks

3) Short the dollar

4) Short U.S. Treasuries

5) Short muni-bonds

6) Long gold and Peak Oil plays

 

All turned out to be disasterous.

True, but, with respect to crude oil, that is about to change. Due to the current monetary policy of the federal government, it is all but certain that the price of oil will rise substantially over the next 24 months. In order to take advantage of this excellent opportunity, an investor needn't do anything more than buy long-dated oil futures contracts, e.g., oil scheduled for delivery in, say, 24 months, to wit, December 2014. I do not see how such an investment could go wrong. The federal government and the banksters cannot manipulate the oil market as they do other, much smaller markets such as, e.g., the market for silver futures contracts (on the Comex).

-- Paul D. Bain

PaulBain@PObox.com

 

 

 

 

Thu, 12/13/2012 - 20:40 | 3061350 Gypsyducks
Gypsyducks's picture

Tell me Paul my friend, where do we set our stop-loss?

Thu, 12/13/2012 - 21:02 | 3061414 tbone654
tbone654's picture

Not trying to answer for Paul...  But, Toby Crabel... Opening Range Breakout (ORB) and specifically the stretch is a great start for setting stops if you are a daytrader...  For most any market... In case anyone cares...

http://www.trading-naked.com/library/%5BTrading%5D-Stocks-&-Commodities-Toby-Crabel-ORB-articles.pdf

Thu, 12/13/2012 - 19:51 | 3061231 Kreditanstalt
Kreditanstalt's picture

HOW can anyone these days get TEN PERCENT p.a.??   You'd have to buy all that retail, financials and consumer discretionary shit that SHOULD be toast...

Financial repression = market-rigging.

Thu, 12/13/2012 - 21:21 | 3061481 devo
devo's picture

Curiously, Bernanke's hedge fund mimicked all asset classes.

 

Thu, 12/13/2012 - 23:03 | 3061758 absente reo
absente reo's picture

Ah heck I've made 400% this year trading my own account.  Anyone want to give me a job?  Trading on your own is a pretty lonely business, I can tell you....

Fri, 12/14/2012 - 07:28 | 3062116 samcontrol
samcontrol's picture

I might be interested...
How about a call for early 2013 and a comission ?

Fri, 12/14/2012 - 08:08 | 3061900 Just Ice
Just Ice's picture

lol ... "HSBC Alternative Investment Group" ... yes, I guess money laundering and libor rigging could count as alternative investments

Fri, 12/14/2012 - 07:28 | 3062117 orangegeek
orangegeek's picture

Peter Schweizer wrote about this in his book.

 

http://bullandbearmash.com/astonishing-illusion-big-money-good-true/

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