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Hedge Funds Underperform The S&P For The 5th Year In A Row
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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So much for hiring Ivy League assholes. Thats such a biased index (managers only show what they want to show) and its still shit.
I hear that the Ivy League assholes at the Fed or in academia do pretty well...
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.
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.
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.
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).
Because every client is absolutely sure that the manager of their fund is always going to be the one that outperforms.
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.
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).
Hedges are for trimming, not investing.
Ditto bushes.
Although a nicely-trimmed bush might require a sizeable investment.
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.
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.
ZIRP lobotomized market signals; the most clever, most keenly felt.
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!
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.
they need to all go zero hedge ...