Hedge fund performance continues to lag the overall stock market, with the HFRX Global Hedge Fund Index returning only 2.4 percent so far this year after fees, compared to a 7.7 percent gain for the MSCI World index of developed markets' stocks.
MarketWatch columnist Brett Arends is none too impressed
"The average hedge fund has produced a worse investment performance in the first half of this year than a portfolio consisting of a savings account at your local bank and a random collection of stocks picked by a blindfolded monkey," he writes.
A portfolio that allocated 20 percent of assets to a savings account and the other 80 percent to a random collection of global stocks shows a return of 6.2 percent so far this year, Arends says. And that is probably a slight underestimate, because it assumes a zero percent interest rate for the savings account.
This outcome isn't surprising given hedge funders' high compensation, Arends says. "Those costs have to come out of investors’ returns."
To be sure, for stock-focused hedge funds, the year has started off well. They scored an average gain of 5 percent through May, according to HFR, besting the 3.2 percent total return for the S&P 500 index.
That's the biggest outperformance for the hedge funds over the first five months of a year since 2009, The Wall Street Journal reports
. The hedge funders haven't topped the S&P 500 for a whole year since 2008
Hedge funds have benefited from merger mania and bets on instability in Europe, writes Journal reporter Rob Copeland. European financial markets have seen plenty of volatility amid the oil price plunge, Greece's debt crisis and Russia's conflict with Ukraine.
Among the hedge fund stars thriving are John Paulson of Paulson & Co., Dinakar Singh of TPG-Axon Capital Management and David Tepper of Appaloosa Management.
Of course, as Copeland points out, the hedge funds' gains could easily be wiped out before the end of the year depending on market conditions.
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