The Glitz and Glamour Fades
- Joshua M Brown
- December 21st, 2012
I told you that this was a nightmare year for tactical managers in terms of keeping pace with their benchmarks - but for hedge funds it was worse.
The vast majority of hedge funds are long/short but in recent years there's been a fracturing. Recently many long/short funds have aspired to more of a global macro bent while others have become something more akin to "leveraged beta" as opposed to doing any kind of actual hedging.
Either way, if you thought things were tough for tactical asset management (thanks to econ data wavering back and forth on the fence and several false market signals) then just imagine being a guy who's taking 20% of this year's meager off the top after getting smoked by the S&P (which costs 10 basis points, essentially market exposure for free).
Not easy to justify.
And that's why the money is coming out as we head into year-end...
Hedge fund administrator SS&C GlobeOp's forward redemption indicator, a monthly snapshot of clients giving notice to withdraw their cash as a percentage of assets under administration, measured 6.19 percent in December.
This was the highest level since September 2009 and almost double the level just two months ago. A year ago, the index measured 4.58 percent.
After a tough time during the credit crisis, hedge funds have managed to avoid a third year of losses in five in 2012, but their gains have lagged stock market indexes.
The average hedge fund was up 4.89 percent in the first 11 months, according to Hedge Fund Research's HFRI index, compared with a 14.94 percent total return from the S&P 500.
As always, capital flows to where it is treated best. And if the Plymouth minivan is going to keep beating the Ferrari to the finish line, who needs the aggravation and the maintenance costs?
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.