Aaron Seager, a portfolio manager at Arbor Hill Advisors, offered up the following charts showing alpha over the past 15 years for Warren Buffett and an index of Hedge Funds.

Humbling to say the least…

Warren Buffett’s Alpha

Warren Buffett arguably runs the most famous “value investing fund” in the world. His performance record over the past 50 years is extraordinary. But how has he performed over the last 15 years?

Below we highlight the 5-year annualized rolling alpha estimates of Berkshire relative to the S&P 500 (daily data of BRK/B-RF on SPY).

The pattern over the past 15 years is not on a positive trend…

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Warren Buffett

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

 Hedge Fund Alpha

Hedge fund managers are considered the “masters of the universe” with their sophisticated organizations, slick marketing mechanisms, and extraordinary fees. How have the masters of the universe fared in recent memory?

Below we present the 5-year annualized rolling alpha estimates for hedge funds (monthly data on CS DJ Equity L/S HF Index on S&P 500 TR Index).

Again, the pattern over the past 15 years is not on a positive trend…

Warren Buffett

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

Simple alpha estimates aren’t the end-all-be-all for performance assessment, and perhaps they are influenced by an underlying pattern in risk-free rates, but the trend to zero for some of the smartest people in the marketplace is not inspiring!

Question:

If Warren Buffett and the hordes of high IQ hedge fund managers can’t generate alpha, who can?

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The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees.

This information is not intended to, and does not relate specifically to any investment strategy or product that Alpha Architect offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.

 

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