Earlier, we showed that for the record 6th year (!) in a row, the average hedge fund will not only underperform the wealth effect policy tool better known as the S&P 500, but will, for the first time since 2011, generate a negative return for the year.
Why? The answer once again takes us to the fundamental problem with central-planning: broken markets unlike anything seen in history. It is shown on the chart below, where we see the average hedge fund generated a negative 1% YTD return (and 0 on the "and 20" portion of PM comp), which in terms of strategies, is only surpassed by the nearly 5% drop in event-driven strats, and the nearly 10% tumble in the EURUSD.
What about the other end? Well, with the S&P in third position of all actively-managed strategies (because the S&P is actively managed by the Fed, the ECB, the BOE, the BOJ and now the PBOC), there are only two strategies that according to Goldman, have outperformed the broader market:
- a basket full of Goldman's Hedge Fund VIP stocks, and paradoxically, just above it...
- a basket of the stocks that most hedge funds love to short.
[5]
That's right: for the 3rd year in a row, the best performing, highest-alpha strategy is to go short the most hated names and just sit back and collect those performance fees, because when nothing makes sense, the worst shall be the first.
Incidentally, this is precisely what we said not only in September 2013 in "Presenting The Best Trading Strategy Over The Past Year: Why Buying The Most Hated Names Continues To Generate "Alpha [6]" but also the year before that when in September 2012 [7]we said:
...since fundamentals don't matter in a world where Austrian monetary theory rules (i.e., the only thing that matters is the amount of liquidity entering or leaving the market at any moment), taking advantage of people who still naively believe that there are traces of rationality and efficiency in a market that is broken beyond any slavage value and short the worst names out there, may be one of the few "strategies" that work, besides of course predicting with 100% accuracy what side of the bed Mario or Ben will wake up on.
None of which will stop those who have the attention span of a Princeton or MIT gnat of accusing Zero Hedge of being an endless doom and gloom permabear, when in reality we merely find constant delight in pointing out just how broken this joke of a market has been for the past 6 years, and certainly allowing those habitual gamblers, who are so inclined, to profit from said farce (we suggest using other taxpayer's money for best effect).
It is for their benefit that we once again present the basket of most shorted names: go long these and as long as central planning is in control, one is virtually guaranteed to outperform the vast majority of hedge funds.
[8]
And as usual, a word of caution: in a market as broken as this, one's paper gains can and ultimately well be gone in the blink of an eye, especially once all exchanges do the "oops, we are broken indefinitely" play and make withdrawing one's funds impossible (i.e., a shareholder bail-in). One can be absolutely certain that this will happen just as the central bankers finally start to lose control over the ludicrous bizarro circus they have all created in their all-in attempt to recreate the USSR, only this time on a global scale (for more read How The Market Is Like CYNK [9])
