Dian's Column
Dian's Archive


Hedge funds not so hot, mutual funds looking better

By Dian Vujovich

Funny thing about hedge funds, when their performance is hot, everyone laughs all the way to the bank. When it’s not, their doors are closing.

Recently, Alexandra Stevensonmay wrote a piece for NYTimes.com titled, “Hedge Funds Close Doors, Facing Low Returns and Investor Scrutiny”. In it she states that there has been a “wave” of hedge fund closings since the first of the year. Three of them include TigerShark, Tiger Consumer and JAT Capital Management.

But closing a hedge fund doesn’t necessarily mean the end of a firm’s money management business. In today’s world it could simply mean saying goodbye to pesky investors and hello to family offices.

“If you have enough money and on top of that it’s a tough market and you don’t want to deal with investors asking about performance, you can take the high road and say, ‘Here’s your money back,’” said Steven Nadel, a hedge fund lawyer at Seward & Kissel.

And opening a family office is just what some have done. Two reasons for doing so include not having to deal with performance demanding investors and, heaps of regulatory paperwork: Family offices don’t have to register with the Securities and Exchange Commission.

On the other hand, the move also means the end to hefty annual fees paid to hedge fund managers every year no matter how the market has performed. Performance that, by the by, hasn’t been very rewarding for many hedge fund investors lately.

Last year, the average hedge fund returned 3 percent. Not so hot when compared with the S&P 500’s 13.7 percent return.

Annualized over three years ending in 2014, the average hedge fund returned 7.36 percent, according to BarclayHedge.com (Barclay here is not affiliated with Barclays Bank). Year-to-date, through the end of April 2015, the average hedge fund was up 3.77 percent.

That said, even the top hedge funds haven’t beaten the Standard &Poor’s 500 index by much over that same time period. Barrons.com reported the Best 100 hedge funds averaged a 21 percent return, net of fees, for the past three years. Or, about one percent better than the S&P 500 index.

So what’s an investor to do? Well, how about a mutual fund?

From Matt Levine’s Money Stuff column dated May 18, 2015, posted on Bloombergview.com, comes this: “Through the end of April, U.S. stock mutual funds that are actively managed rose 2.25%, including dividends and expenses, according to research firm Morningstar Inc. Mutual funds that track various stock indexes were up 2.2% in the same period, while the S&P 500 gained 1.9%…Also “nearly half” of active funds beat their benchmarks, “up from 21% for all of 2014…”

Now there’s something to chew on, and, it’s a way to save something like 20+ percent in fees each year.

To read more articles, please visit the column archive.

[ top ]