Thursday, 23 August 2012

Hedge Fund Performance Update - YTD

As always, its interesting to look at professional benchmarks to get a big picture of where you stand vs everyone else.  Numerous studies have shown that the majority of hedge funds (outside of some great performers) fail to outperform a simple passive index fund (I'm looking at you John Paulson), sometimes by significant and almost embarrassing amounts considering the outrageous fees they charge.

Courtesy of Bloomberg Briefs, here is a compiled list of hedge fund returns by strategy as of early August.  For reference the S&P 500 was up approximately 11.25% in this same timeframe.

As you can see, the ONLY hedge fund strategy which delivered above market performance is... Mortgage-Backed Arbitrage.  A bit surprising but considering that strategy's 2010 and 2011 performance as well as the inefficiencies left in the housing industry after the real estate bubble, its understandable.

However, what is very unfortunate for hedge funds is the more common Global Macro and Long/Short Equities and Long Biased Equities who delivered performance of -2.4%, -3.5%, and -4.6% respectively.  Considering the 11%+ returns in the S&P passive index method, this again support the argument that hedge funds are a great way to lose money and to pay them while doing it.  Ok, that may be harsh but so far, its justified based on these numbers.

Source: Bloomberg Briefs

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