Hedge funds aren’t doing well in recent months. A new chart, which was released by Goldman Sachs, showed the performance of the industry against major indices. The result, as any contemporary investor will predict, was not in favor of the investment vehicles. 2012 was a bad year for hedge funds, and judging by performance so far, 2013 could be even worse.
Hedge Fund Performance:
According to a Businessweek piece on hedge fund performance, it is down because the current environment is not one that hedge funds are comfortable operating in. QE3 is pacifying the market and low volatility is not in the playbook of many hedge fund investors.
According to Businessweek, the VIX, one of the standard volatility indices, registered a low of 13 recently. Back in 2008, the VIX was reading a 90, and in the midst of the 2011 Euro crisis the VIX was up to 30. QE is acting as a regulator, and hedge funds are simply not able to thrive in this environment.
So far in 2013, as the stock market reaches more and more highs, hedge funds just can’t keep up, and very few are managing to actually beat the wider indices. As the Goldman Sachs Group, Inc. (NYSE:GS) chart shows, hedge fund performance so far in 2013 have been around 5.4 percent, while the S&P 500 has gained 15.4percent. Even mutual funds are up 14.8 percent so far this year.
The hedge fund VIP list, which is a basket of the 50 stocks most owned by hedge funds, grew by more than 17 percent in the opening months of the year. Some hedge funds are doing quite well, but as can be expected those are the most famous and expensive ones. The average hedge fund is dragging down the rest of the industry.
Hedge funds don’t like Ben Bernanke, that’s because the Quantitative returns program being run by the Federal Reserve chairman is choking their ability to make returns. Other managers have said that QE is the way in which the government is paying for the deficit, so it may continue indefinitely.
If that happens, the age of the hedge fund might just be over. A long spell in which that group of investors makes less money for clients than index betting would cut many of them out of the market. The hedge fund won’t disappear though, it will just be reduced to a smaller pool of very good investors.