Hedge Funds Lag S&P 500 by 677 Basis Points in Just 90 Days

Hedge Funds Lag S&P 500 by 677 Basis Points in Just 90 Days

Hedge funds trail S&P 500 by 677 for first 90 days of 2013
Hedge funds are up 3.26% in 2013 through March 31st, while the S&P 500 is up 10.03% according to BAML’s hedge fund monitor. To be more precise… Global diversified hedge fund index was up 3.26% for the first quarter of 2013, compared to a price return of 10.03% for the S&P 500.

Put another way,  hedge funds are trailing the S&P 500 by 677 basis points in only 90 days of trading. Dan Loeb’s Third Point is one exception, up 9% YTD. Odey Asset Management, Tudor Investments and some other select names are performing slightly better. However, the vast majority of investors would do better buying index funds than hedge funds milking them for their 2/20 fees. It should be noted that the 2/20s fees are essential for the luxury housing industry in the Hamptons. All in all, the performance is extremely poor coming after an awful 2012. Additionally, in 2012 it took hedge funds three quarters to underperform by 860 Basis Points, this year the underperformance has been nearly matched in 90 days.

Other notable findings from the latest BAML report

This Top Energy And Infrastructure Fund Is Bullish On U.S. Utilities

UtilitiesThe Electron Global Fund was up 2% for September, bringing its third-quarter return to -1.7% and its year-to-date return to 8.5%. Meanwhile, the MSCI World Utilities Index was down 7.2% for September, 1.7% for the third quarter and 3.3% year to date. The S&P 500 was down 4.8% for September, up 0.2% for the third Read More

On average, the hedge fund index tends to outperform the S&P 500 during the first quarter. The former has returned an average of 3.11% during the first quarter since 1995, compared to up 1.78% for the S&P 500.

Large speculators (as defined by the CFTC) aggressively bought 10-year Treasuries as yields tumbled; readings are approaching a crowded long. Euro and Yen are approaching a crowded short.

Gold moved out of a buy zone while Silver moved into a buy zone.

The investable hedge fund composite index was up 0.64% month-to-date as of March 26, compared to a price return of 3.24% for the S&P 500 index. Event Driven and Equity Long/Short performed the best, up 1.45% and 1.29%,
respectively. Market Neutral performed the worst and was down 0.13%.

Examining Hedge Fund positioning by major strategies

BAML models indicate that Market Neutral hedge funds aggressively sold market exposure to 2% net long from 7% net long. Equity Long/Short sold market exposure to 23% from 28% net long, well below the 35-40% benchmark. Macros sold the  readings in S&P 500 (INDEXSP:.INX), NASDAQ-100 (INDEXNASDAQ:NDX) and 10-year Treasuries, bought commodities, and aggressively bought USD to a slight net long for the first time since January 2013. In addition, they partially covered EM but maintained their shorts in EAFE. .

Significant Hedge Funds  moves across asset classes based on CFTC data

Equities: Large specs sold both the S&P 500 and Russell 2000, and were flat in NASDAQ 100 futures. S&P 500 remains in a crowded long.

Agriculture: Large specs bought soybean & corn, and partially covered their shorts in wheat. Readings are neutral.

Metals: Large specs sold gold & silver, were essentially flat in platinum & palladium, and added to their shorts in copper. Gold moved out of a buy zone; Palladium stays in a crowded long; Silver moved into a buy zone.

Energy: Large specs bought crude oil & gasoline, sold heating oil, and partially covered natural gas. Crude remains in a crowded long.

FX: Large specs held USD steady in a crowded long, and added to their shorts in Euro & Yen. Euro & Yen are approaching a crowded short.

Interest Rates: Large specs partially covered 30-yr Treasuries, and bought 10-yr & 2-yr Treasuries. 10-yr is approaching a crowded long.

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