Hedge Fund Performance by Strategy
By Barry Ritholtz - November 13th, 2008, 10:00AM
With 6 hedge fund managers — Philip Falcone, Kenneth Griffin, John Paulson, James Simons and George Soros — testifying before the House Committee on Oversight and Government Reform today, it might be a good time to look at how various strategies have been performing.
What hedge fund strategy has yielded the best relative performance?
Not that as poor as this chart below is, all of these strategies have outperformed the indices:
via Expected Loss
November 13th, 2008 at 10:16 am
I just threw up on my shoes. I think we are at bottom.
November 13th, 2008 at 10:19 am
Thank god I bought on cash. I would have been wiped out here otherwise.
November 13th, 2008 at 10:20 am
You can do a lot better trading futures on your own. 10% in the better part of a year? You could do that on one good day and take the rest of the year off.
November 13th, 2008 at 10:20 am
DO NOT LEVERAGE UP!!! Just in case.
November 13th, 2008 at 10:42 am
a serious question for barry and anyone smarter than me (that would be most of the well-respected commenters)
If I could run a timelapse movie showing a graph of population by age, we are clearly a wave crashing towards the high 50’s and 60’s. These are the people that have had it drilled in their heads to start getting conservative at this age. Now assuming some people survived with their asssets more or less intact for whatever reason, and had enough to retire, here is a dilemna:
Yields clearly suck. Having a $2mm nest egg mighta been ok 10 years ago where you could safely roll treasuries and ladder cds and munis and such. That is all but gone.
People if they havent left equities, will be pouring out en masse now among that demographic, if they have enough to retire.
So with an increased demand for debt (isnt that part of what got us into this mess) and a decreased demand for equities over the long run (which will continue as people spend down their retirment and sell off their 401k), what investment class DOES look good? Real Estate if it conitnues to get kicked in the ****?
This is a weak-ish case for a good long short strategy, or something to that extent.
Anyway, I am not sure why I am looking for answers, since I am barely smart enough to know a few of the questions.
November 13th, 2008 at 10:57 am
Sorry to be off topic, but CIT Group just applied to become a “bank holding company”. This is well past the absurd. Who’s next? Any ideas?
November 13th, 2008 at 11:06 am
i’m listening to oversight committee right now on Hedge Funds and the Financial Market
http://oversight.house.gov/schedule.asp
i hope i didn’t miss the big hedge fund guys speak (paulson, simmons, soros)
November 13th, 2008 at 11:16 am
Is this net of all fees? What about after tax returns?
November 13th, 2008 at 11:17 am
Karen-
Is the audio shitty on your link? I cant hear anything on mine…
November 13th, 2008 at 11:24 am
mine is working perfectly and the big guys are coming out soon. : )
November 13th, 2008 at 11:26 am
Judging by that chart, the smartest guys in the room aren’t doing so well. Makes me feel pretty good about being in cash since May.
For those who haven’t seen it I found this long article by Soros very educational. One of the reasons I stayed in cash was that I couldn’t figure out why the US$ was rising in the midst of all the gloom and doom. Now I think I know.
http://www.nybooks.com/articles/22113
November 13th, 2008 at 11:31 am
Ok… I got it now. This should be good.
November 13th, 2008 at 11:41 am
I was just reading a blurb from INO that dropped in my inbox:
When Paulson came out today and stated that his earlier plan to save the
western world was not working, he offered up a plan “C” (or is it “D”)
to relieve pressure on consumer credit, scrapping his earlier effort to
buy the value mortgage assets.
No matter what happens or what the next plan is here, are the 3 reasons
I believe stocks are headed lower.
* Number one: The trend in most all stocks is down. This trend is
likely to persist and last longer than most people imagine.
* Number two: There is no plan. The government is floundering and does
not have a plan that is going to work anytime soon.
* Number three: We have a lame-duck president, and nothing is going to
happen of any consequence until President-elect Obama is sworn in.
And, contrarily, i thot, this could be the greatest buying opportunity of the next 10 years…
November 13th, 2008 at 11:48 am
I can’t believe what i’m hearing! giving the FED even more power?!
November 13th, 2008 at 11:50 am
@karen: I’m with you. Being mighty careful here. Stocks are headed down big. Just don’t know when but once the lows are breached, it’s going to get really nasty.
November 13th, 2008 at 11:58 am
Jeff, my point was just the opposite : ) “this could be the greatest buying opportunity of the next 10 years…”
earnings of the surviving companies may surprise on the upside in quarters to come. i’m not saying to jump into homebuilders or reits, of course, but the world isn’t going to stop consuming food, energy, resources…
just contrary thots fwiw
November 13th, 2008 at 12:04 pm
“Reflexivity”
November 13th, 2008 at 12:08 pm
@karen: Oh, I agree, there are going to some major opportunities (the number of stocks that reach new 52-week lows daily lately has been astounding) and I’ve dipped a toe or two in a bit lately (ACI, MCD, PRGN, courtesy of your tip) but am being very careful. Think we have much further to fall (again, just don’t know when) and want to have some majory powder dry for that buying opportunity.
November 13th, 2008 at 12:19 pm
BR has often called for more “regulation” of the financial services industry. The obvious question is, what about hedge funds?
Of course, excessively stringent regulation of the hedge funds would send them offshore (e.g., Cayman Islands). But so what? As long as banks aren’t lending to hedge funds that are domiciled outside the U.S., I don’t think it matters what they are doing (for the most part).
November 13th, 2008 at 12:54 pm
roncfp: Hedge fund index returns are net of fees
As “Managed Futures” is the only category that managed to escape the carnage, no doubt there will be hot money going into that strategy to chase returns. However, trend following CTAs (which comprise most of this category) don’t seem to have any alpha after fees.
See the discussion on my blog at http://humblestudentofthemarkets.blogspot.com/2008/11/trend-following-ctas-no-panacea.html
November 13th, 2008 at 4:03 pm
@CamHui: Thanks! But not net of taxes. Nice recovery today.
November 13th, 2008 at 10:52 pm
For TheUnrepentantGunner:
First off, I don’t presume to be smarter than you, but here’s a strategy that I’ve been tinkering with lately:
I am expecting a continued downward drift to the equities market (like Japan for the last twenty years). Understand, I expect counter-trend rallies as well, with volatility continuing to surge.
Thanks to recent ETF developments, we’ve got these ultra-short funds, and these funds trade options. I buy the ultrashort ETF and write covered calls on it.
Example:
SRS (ultrashort Real Estate) closed today at $134.70
The November $135 call is $12.70 (9.4% for six trading days)
or maybe December $135 call for $23.50 (17.5% for 25 trading days)
These are handsome returns for covered calls, but it gets better. The price swings are so wild (almost $57 for SRS today alone), that if the price drops sharply you can buy back the call for cheap, wait a few days and sell it again. So far, I am comfortable with this approach. I am not living and dying with every tick. Of course, a huge positive market upswing and/or sharp decline in volatility would make this strategy a loser.
It’s an idea anyway, hope it helps.
November 14th, 2008 at 1:49 am
Barry-
Stock indices are not an appropriate benchmark for most of those HF strategies.
Instead, most should be benchmarked to [riskfree rate + x%], i.e. absolute return.
Only two, the managed futures and index return groups, show decent returns vs. their appropriate benchmarks this year. Macro has done okay.
The remaining seven groups, individually, are abysmal.