Swedroe: Hedge Fund Performance Update

April 17, 2019

Hedge funds entered this year coming off their 10th straight year of trailing the return of the S&P 500 Index. And as you can see in the following table, over the 10-year period ending 2018, they underperformed every single major equity asset class by wide margins. They also outperformed virtually riskless one-year Treasuries by less than 1%, and underperformed intermediate and long-term Treasuries.

 

  10 Years Through
December 2018 (%)
   
HFRX Global Hedge Fund Index 1.5
Domestic Indexes   
S&P 500  13.1
MSCI US Small Cap 1750 (gross dividends)  13.3
MSCI US Prime Market Value (gross dividends) 11.4
MSCI US Small Cap Value (gross dividends) 11.9
Dow Jones Select REIT  12.0
   
International Indexes   
MSCI EAFE (net dividends)  6.3
MSCI EAFE Small Cap (net dividends)  10.5
MSCI EAFE Small Value (net dividends)  10.1
MSCI EAFE Value (net dividends)  5.5
MSCI Emerging Markets (net dividends)  8.0
   
Fixed Income   
Merrill Lynch One-Year Treasury Note  0.6
Five-Year Treasury Notes  2.0
20-Year Treasury Bonds  3.7

 

With that perspective, we’ll review their performance over the first three months of 2019, in which the HFRX Global Hedge Fund Index returned 2.13%, 0.63%, and -0.17%, respectively, producing a total return of 2.6%.

 

  1st Quarter 2019
Return %
   
HFRX Global Hedge Fund Index 2.6
Domestic Indexes   
S&P 500  13.7
MSCI US Small Cap 1750 (gross dividends)  15.2
MSCI US Prime Market Value (gross dividends) 11.6
MSCI US Small Cap Value (gross dividends) 12.9
Dow Jones Select REIT  15.7
   
International Indexes   
MSCI EAFE (net dividends)  10.0
MSCI EAFE Small Cap (net dividends) 10.7
MSCI EAFE Small Value (net dividends)  9.0
MSCI EAFE Value (net dividends)  7.9
MSCI Emerging Markets (net dividends)  9.9
   
Fixed Income   
Merrill Lynch One-Year Treasury Note  0.8
Five-Year Treasury Notes  3.2
20-Year Treasury Bonds  10.0

 

As you can see, the hedge fund index underperformed every major equity asset class, and two of the three bond indexes. However, we can take our analysis a step further and determine how hedge funds performed against a globally diversified portfolio.

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