Hedge funds had their best month in over a decade in November, but continue to perform worse than the broader market, once again raising questions about the value of expensive active investment management.
Data from hedge fund tracker Eurekahedge released Tuesday shows that globally, hedge funds of all strategies returned 4.49% in November. That was the best monthly showing since May 2009, when they returned 5.0%.
Eurekahedge noted in a release, “The better-than-expected efficacy of the
COVID-19 vaccines and optimism on the new US administration boosted the
performance of the global equity market during the month.”
Indeed, the broad U.S. equity market, the S&P 500
returned 11% during the month.
For the year to date, hedge funds are also lagging the broader market. They are up 8.17% in 2020 through the end of November, compared to a 14% return in that period for the S&P 500. A bet on technology stocks did even better: the Nasdaq Composite
returned 37.1% in that timeframe. In the year to date, the best-performing hedge fund strategy is long/short equities, which is up 12.1%.
In 2019, hedge funds returned 8.9% for the entire year, according to Eurekahedge data. MarketWatch called that “a disappointing outcome compared with the 28.9% pop for the S&P 500” earlier this year.
Last year also saw a client exodus out of hedge funds, the worst since 2009, as previously reported.
Many market analysts have drawn comparisons between 2009’s market backdrop and that of late 2020. Both are recovery periods after massive shocks to the economy, which can usher in change to the financial markets.
Among other things, the aftermath of the 2008 financial crisis helped accelerate a long slow shift across the investing landscape into passive management.
Even when investors embrace active managers, and active managers outperform, as in the case of ARK Invest’s Cathie Wood this year, it often reflects choices that aren’t good for hedge fund investors. Wood’s flagship fund
charges a 0.75% management fee, while hedge fund fees are still averaging over 1%, according to a chart from Eurekahedge.
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