Swedroe: Hedge Funds Fail Across Asset Classes

October 14, 2016

Hedge funds began this year coming off their seventh-straight year of trailing U.S. stocks (as measured by the S&P 500 Index) by significant margins. What’s more, for the 10-year period ending 2015 (one that included the worst bear market in the post-Depression era), the HFRX Global Hedge Fund Index managed to return just 0.1% a year, underperforming every single major equity and bond asset class.

Unfortunately for hedge fund investors, so far 2016 has not been kind. The bottom line for hedge funds is that their negative performance streak has continued into an eighth year. The HFRX Global Hedge Fund Index gained just 1.1% through September, underperforming nine of the 10 major equity asset class indexes as well as five-year Treasury notes and 20-year Treasury bonds.

The following table shows the returns for various equity and fixed-income indexes through the first nine months of 2016.



As you can see, the hedge fund index underperformed nine of the 10 major equity asset classes (just barely outperforming the MSCI EAFE Value Index by 0.3 percentage points) and two of the three bond indexes (outperforming the virtually riskless one-year Treasury note by only 0.4 percentage points). We can, however, take our analysis a step further and determine how hedge funds performed against a globally diversified portfolio.


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