Click to enlarge

Source: Bloomberg



from David Wilson of Bloomberg via the terminal:

Hedge funds are paying a price for being too hesitant to buy stocks in the midst of a four-year bull market, according to Barry Ritholtz, FusionIQ’s chief executive officer.

As the CHART OF THE DAY shows, Hedge Fund Research Inc.’s broadest fund index fell out of sync with the Standard & Poor’s
500 Index in 2011 and has yet to recover. The HFRX Global Hedge Fund Index had a 4.8 percent advance for the year through last week, while the S&P 500 was 16 percent higher.

Many fund managers have been “overly timid and suffering from risk aversion” because of the magnitude of the losses that preceded the current advance, Ritholtz said yesterday during an interview. The S&P 500 tumbled 57 percent from its October 2007 high to its March 2009 low.

Federal Reserve policy has worked against managers with a macro strategy, which focuses on political and economic events, he said. The central bank is conducting its third round of bond purchases, or quantitative easing, and has held its benchmark interest rate near zero since December 2008.

“This has been an impossible macro environment to trade unless your macro theme has been Fed, Fed, Fed and you buy everything you can,” said Ritholtz, based in New York. He serves as his firm’s director of equity research.

The HFRX Macro/CTA Index was 0.2 percent higher for the year as of last week after falling for four years in a row. The indicator reflects the performance of macro funds and commodity trading advisers, which focus on buying and selling futures, options and other types of contracts.


David Wilson
Bloomberg, May 30, 2013


Update: Hey, its now at

Category: Hedge Funds, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

10 Responses to “Risk Aversion Puts Hedge Funds Behind S&P 500”

  1. gman says:

    I thought these guys were smart enough to not take the WSJ, IBD, and CNBC echoed “islamosocialist ” and “uncertainty” memes seriously? Epidemiological failure for the “smartest men in the world”.

    Buffet famously bought his first stock in 1943 and bought more during the Cuban missile crisis. BTW the tax rates were up 90% during much of this time. How much uncertainty have we faced recently in comparison?

    Don’t worry about the managers of the these funds..they will be fine..shed a tear for the client that paid massive fees for the privilege of under-performing.

  2. RW says:

    If they didn’t get paid regardless of (under)-performance I could sympathize more but can at least empathize somewhat because I paid a similar opportunity cost the first 5 or 6 quarters of this run and have only done relatively better since: just couldn’t convince myself the Fed would really stick with it.

    Investors in Japan seem to experiencing similar qualms, quite understandably, but I don’t see any reason to believe the BoJ is where the Fed is right now; i.e., I see no evidence they are even dreaming of ‘tapering’ much less discussing it.

  3. VennData says:

    Timid. Think of these greedy, malformed dorks as timid. America’s timid hedge fund people, thank goodness we don’t have to fight wars and protect ourselves with these timid weaklings.

  4. That’s a horrifically poor and misleading chart. The Hedge fund index is not even on the same scale (proportionately) as the S&P index. The hedge fund index values are up 20% since 2003, whereas the S&P is a clean double (up 100%). The chart is clearly not a total return chart, though — at least not for the S&P — so one has to wonder whether this is even a meaningful comparison. No one owns index (price) returns, they buy total returns: dividends should be included. Are hedge fund capital distributions also omitted? If so, isn’t this an apples-to-oranges comparison? What about survivor bias in the hedge fund index?

    On the other hand, cherry-picking the trough in the S&P in 2003 as the point from which to start the comparison may also be horrifically skewing the perception.

    Overall I’d guess that the chart actually makes the hedge fund results look even better than they actually were(n’t). But boy is this a crappy way to make a comparison.

    Finally, I don’t think the S&P500 is the benchmark index for all hedge fund performance, nor is it the real benchmark for all investor performance. One might do a nominal pension or insurance allocation and plot 2/3 S&P plus 1/3 bond index… of course, that would lead one to the inescapable conclusion that long-term bondholders crushed BOTH stockholders and hedge fund investors for the past decade, though no one is selling that meme anymore with yields so low now and Rosie having changed sides…

    • rd says:

      One of the reaons that hedge funds are supposed to exist is to get equity-like long-term returns with much lower volatility, and especially avoiding the big crashes. As a result, I don’t have a problem comparing them with the S&P 500 – if they showed a much flatter chart, then comparison with a 60/40 stock/bond mix would be a much more appropriate benchmark but I don’t see evidence of that even with the different Y-axis scales.

  5. rd says:

    When the average active mom-and pop investor posts portfolio returns like this, they are universally decried as being the “dumb money”, “unsophisticated”, “idiots” and more.

    The reason mom-and pop are idiots is because they don’t get paid 2% of fees every year of somebody elses assets (clearly not too many of these hedge funders are earning a lot of 20% of profits). Instead, they pay 2% of their own. If the average investor could reverse that, they too could own Park Avenue penthouses and their own private yachts.

  6. scecman says:

    Two observations from the chart don’t make a trend, but is there anything to hedge funds lagging in the early stages of a bull market? Could this be due to a “smarter than the crowd” attitude by fund managers that doesn’t turn fully bullish until they are lagging the indexes? Is there a timing system here waiting to be exploited? (start trimming longs when HFs start outperforming)

  7. Willy2 says:

    Perhaps these managers are aware of the fragile state of the world economy and don’t want to risk too much ?

  8. [...] Barry Ritholtz wrote a blog post about how hedge funds (an active strategy) have underperformed recently. Many hedge funds I spoke [...]

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