Unfortunately for hedge fund investors, stories like this one have gotten fairly commonplace. The latest data from Wall Street hedge funds indicates fund investors would have been better off letting monkeys pick their stock portfolio.
According to the HFRX Global Hedge Fund Index, the average hedge fund has produced a 2.4 percent gain so far in 2016 once client fees are deducted. During the same stretch, the SPDR S&P 500 ETF Trust SPY 0.16% is up 3 percent, and the average stock in the MSCI World index is up 7.7 percent.
If you think 2016 has simply been a bad year so far for hedge funds, it’s actually been more of the same. As of the end of February, the HFRI Fund Weighted Composite Index was down 2.6 percent over the past year, an almost identical decline to that of the S&P 500.
Prior to 2015, hedge funds had underperformed the S&P 500 for seven consecutive years.
Hedge fund managers argue that the true value in the funds is risk management. However, when tested against the performance of Cambridge University’s best risk-managed simple portfolio of 80 percent stocks and 20 percent cash, MarketWatch reports that hedge funds are still coming up short. The 80/20 stock/cash portfolio, even at 0 percent interest on the cash, would still have generated a 6.2 percent gain so far this year based on the MSCI World index.
As some point down the line, hedge funds will have…
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