The ongoing Eurozone uncertainty seems to be hindering hedge fund returns, leading to poor HFRX returns.
Many of the world’s largest hedge funds have adopted a short position recently, and have been hurt relative to the S&P 500 index.
June saw one of the S&P’s best months of the last couple of years as it gained over 4%, leaving it up more than 9% over the year.
By comparison, the HFR index has risen little more than 1% this year, leaving pension funds, institutional investors and high net-worth individuals ruing missed opportunities.
Indeed, this is not just the story over the year, but in individual months, as this article forcefully illustrates.
While some may cite ‘lies, damn lies, and statistics’, a direct comparison of the S&P 500 and the HFRX paints a convincing picture of hedge fund underperformance.
As this Primnews report begins, “The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe.”
The HFRX Hedge Fund Index is very broad in scope, so individual fund performances will certainly negate these observations, but it is telling that in 2009, the S&P 500 outpaced the HFRX Hedge Fund Index by 10 percentage points, in 2010, the HFRX Hedge Fund Index gained 5.2% against the S&P 500’s 8.9%, and 2011 was similar, with a nearly 9 percentage point difference in the S&P 500’s favour.
Put another way, £100 million invested in a way that could mirror the HFRX Hedge Fund Index (effectively a theoretical, but nonetheless interesting exercise) at the start of 2009, would have been worth £110,500,000 by the end of June 2012.
A similar investment in the S&P 500, would be worth over £154 million. Furthermore, when investors are forced to pay the ‘2 and 20’ fee – 2 percent of assets under management, and 20 percent of profits, they are being left further short.
Of course, there are exceptions to this general trend. Nevertheless, the depth and length of this particular data comparison certainly lends weight to those arguing that the advent of technology is hindering, rather than favouring, hedge fund managers.