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Hedge Funds Underperform The S&P For The 5th Year In A Row

Tyler Durden's picture


The $2.5 trillion hedge-fund industry is headed for its worst annual performance relative to U.S. stocks since at least 2005. As Bloomberg Brief reports, the funds returned 7.1% in 2013 through November; that’s 22 percentage points less than the 29.1% return of the S&P 500, with reinvested dividends, as markets rallied to records. Hedge funds are underperforming the benchmark U.S. index for the fifth year in a row as the Fed's inexorable liquidity pushes equity markets higher (and the only way to outperform is throw every risk model out the window). Hedge funds (in aggregate) have underperformed the S&P 500 by 97 percentage points since the end of 2008.



Ironically, a glance at the chart should explain much of it - hedge funds are "hedge" funds and appear to have done a great job managing performance over time... but in the new normal world in which we live, where downside risk is irrelevant (until it runs you over), all that matters is return (not risk-reward)...


Chart: Bloomberg Brief


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Fri, 12/13/2013 - 16:16 | Link to Comment The Juggernaut
The Juggernaut's picture

So much for hiring Ivy League assholes.  Thats such a biased index (managers only show what they want to show) and its still shit.

Fri, 12/13/2013 - 16:16 | Link to Comment LawsofPhysics
LawsofPhysics's picture

I hear that the Ivy League assholes at the Fed or in academia do pretty well...

Fri, 12/13/2013 - 16:22 | Link to Comment Grande Tetons
Grande Tetons's picture

Investing used to be like playing 3 card Monty. Now it is like playing 1 card Monty.  

Just walk away and go to the petting zoo. That is my advice. 

Fri, 12/13/2013 - 16:28 | Link to Comment NuYawkFrankie
NuYawkFrankie's picture

Hedge Funds Underperform The S&P For The 5th Year In A Row

Now that takes real talent - must be why they're paid the big bucks.

Fri, 12/13/2013 - 16:30 | Link to Comment AndrewJackson
AndrewJackson's picture

You might be on to something. The streak of bad performance, when adding back commissions and fees, might actually be statistically significant to do a contrarian portfolio strategy. Buy the S&P 500 and take the other side of diverse group of hedge funds.

Fri, 12/13/2013 - 16:28 | Link to Comment AndrewJackson
AndrewJackson's picture

Hedge funds are the biggest joke of all time. What is even a bigger joke, though, is the nature of their clients. How can anyone be so stupid to think that a trillion dollar industry can beat the market in aggregate when they charge 2/20 and generate huge fees in "active management" (portfolio churning).

Fri, 12/13/2013 - 16:34 | Link to Comment NeedleDickTheBu...
NeedleDickTheBugFucker's picture

Because every client is absolutely sure that the manager of their fund is always going to be the one that outperforms.

Fri, 12/13/2013 - 23:51 | Link to Comment long-shorty
long-shorty's picture

Do you believe that some HF managers are capable of outperforming their peers over time, or do you believe that investing is the one human endeavor where it is not possible to do better than average? Seems to me that if it is possible to be an above average basketball player or scientist or mathematician or teacher or doctor or plumber or high jumper that it is probably possible to be above average as a HF manager. 

Fri, 12/13/2013 - 16:31 | Link to Comment NoDebt
NoDebt's picture

I think of all the pension funds that I heard publicly swear allegiance to long/short funds after the crash and shake my head.  "Garage Band Hedge Funds" is the term that keeps popping into my head every time I see a chart like that.

I wonder how the guys who are running Apple's internal hedge fund have been doing this year.  When we last saw any data about them a year ago they looked like rock starts (in up and down markets over 20+ years).

Fri, 12/13/2013 - 16:30 | Link to Comment 666
666's picture

Hedges are for trimming, not investing.

Fri, 12/13/2013 - 17:04 | Link to Comment NuYawkFrankie
NuYawkFrankie's picture

Ditto bushes.

Although a nicely-trimmed bush might require a sizeable investment.

Fri, 12/13/2013 - 17:08 | Link to Comment Central Bankster
Central Bankster's picture

The other possibility is that random variance trumps the "skill" on a small enough time frame (5 years?).  Maybe for "skill" to show would take hundreds or perhaps, thousands of years on average?  Anyone considering the possibility that luck is the largest factor and skill just increases your chance of getting lucky by a small amount?  I used to play a lot of online poker so I know a lot about being unlucky/lucky for hundreds of thousands of hands and sometimes when you're losing/winning it has no reflection on how you are playing from a statisical standpoint.  The "wins" and "losses" can be statistical outliers for extended periods of time (months or years in this case).  Its a hard thing to experience, when its happening to you.   That would explain a lot of frustration on the whole fundamentals getting worse and stocks still going up etc.

Sat, 12/14/2013 - 22:12 | Link to Comment hooligan2009
hooligan2009's picture

ponders why the same people (30-40) always seem to appear at the last table of 5-6 winners in a poker tournament of thousands..i hope you are a better central baker than a poker player! heh...just yanking your chain.

Fri, 12/13/2013 - 16:46 | Link to Comment ToNYC
ToNYC's picture

ZIRP lobotomized market signals; the most clever, most keenly felt.

Fri, 12/13/2013 - 16:59 | Link to Comment falak pema
falak pema's picture

there are a lot of lousy financial shams out there like that breed of economists; a herd instinct in man to follow the end of the rainbow!

Fri, 12/13/2013 - 17:06 | Link to Comment TheRideNeverEnds
TheRideNeverEnds's picture

Why dont they just buy twitter?  It is clearly going to 100 by christmas.  Sheeeit it is up basically 50% in the last two weeks. 


Disregard profits, acquire multiple expansion.  

Fri, 12/13/2013 - 17:21 | Link to Comment pragmatic hobo
pragmatic hobo's picture

they need to all go zero hedge ...

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