Swedroe: Enough With The Hedge Fund Hype

July 23, 2014

Hedge funds promise a lot and cost even more, but they’re again falling short in 2014.

The first half of this year again brought hedge funds little relief from their historically poor performance.

Hedge funds began 2014 coming off their fifth-straight year of trailing U.S. stocks by some significant margins. And based on data through June 30, it doesn’t look like this year is shaping up to be much better. The latest data show that investors continue to pour money into hedge funds, which had total assets under management at the end of April of $2.9 trillion, a new record.

Despite ample evidence of their underperformance, hedge funds continue to attract great attention from investors. I’ll never stop asking, Why? And instead of the hype and hope that investors so often hear from hedge fund managers, I’ll simply continue to provide you with the hard data on their performance.

The table below shows the returns of the HFRX Global Hedge Fund Index for the first half of 2014 as well as the 10-year period from 2004-2013. It also shows the returns of several equity asset classes and those for one-, five-, and 20-year Treasurys.

Over the prior 10 calendar years, the HFRX Global Hedge Fund Index—which follows an asset-weighted approach in an attempt to accurately reflect changing opportunities in the hedge fund industry—managed to underperform every major equity asset class and even the three Treasury indexes.

Fund Annualized
Return (%)
Total Return (%)
HFRX Global Hedge Fund Index 1.0 1.8
Domestic Indexes
S&P 500 Index 7.4 7.1
MSCI US Small Cap 1750 Index (gross dividends) 10.4 5.5
MSCI US Prime Market Value Index (gross dividends) 7.4 8.1
MSCI US Small Cap Value Index (gross dividends) 9.4 6.7
Dow Jones US Select REIT Index 8.2 18.2
International Indexes
MSCI EAFE Index (net dividends) 6.9 4.8
MSCI EAFE Small Cap Index (net dividends) 9.5 5.5
MSCI EAFE Small Value Index (net dividends) 10.1 6.6
MSCI EAFE Value Index (net dividends) 6.8 6.0
MSCI Emerging Markets Index (net dividends) 11.2 6.1
Fixed Income
Bank of America Merrill Lynch One-Year Treasury Note Index 2.1 0.1
Five-Year U.S. Treasury Notes 4.3 1.5
20-Year U.S. Treasury Bonds 6.1 10.9



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