Hedge Funds Mimic the S&P 500

I guess we're not done picking on hedge funds quite yet.  Business Insider.com shows how hedge funds have increasingly been mimicking the S&P 500.  Here's their commentary.

Generally speaking, most hedge funds will try to offer superior returns or stable returns in any market. But according to {the chart above} from Morgan Stanley's Adam Parker, "hedge funds in aggregate are essentially long the S&P 500."

The chart {above} shows the correlation between the S&P 500 and a broad equity hedge fund e index. The closer a correlation is to 1, the more the two things are in sync. The difference here is that you can buy an index mutual fund with expenses that are a fraction of a fraction of a percent, whereas a hedge fund will charge you 2% then take another 20% of your profits.

Of course, not all hedge funds are the same.  And perhaps that's why investor will always make bets on the low probability that they've found the fund manager who can beat the market.

My thoughts:  The very name "hedge fund" implies an asset allocation strategy that attempts to take advantage of opportunities in many different parts of the markets, including the short side.  With that in mind, investors should expect in a year like last {when the markets were off to the races} that hedge funds in aggregate would under perform the markets.  Yet according to Bloomberg, hedge funds have now underperformed the markets for five years in a row.  This is a long enough period for eyebrows to be raised as it encompasses everything from flat markets, rising bullish environments and periods were the markets declined double digits.  I think there are too many hedge funds cashing too few ideas and that many managers carry more about the 2 plus 20 fee structure than operating as the funds were  originally designed to be.

*Long ETFs related to the S&P 500 in client and personal accounts.

Link:  Business Insider.com  Average Hedge Fund is Basically an Overpriced Index Fund.