Hedge funds lose out to equities, again

Sun Dec 22, 2013 7:08pm EST
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By Tommy Wilkes

LONDON (Reuters) - For hedge funds that made money this year there was only one strategy that really mattered - latching onto the stockmarket rally.

For everyone else 2013 proved another tough year as big-name funds as varied as global macro, commodity and computer-driven funds struggled to make money, eating further into the track record of these one-time 'masters of the universe.'

So far this year the average hedge fund is up 8.2 percent - their best year in three but lower than a near 21 percent rise in the MSCI World Index .MIWD00000PUS for stocks.

More worrying is that longer-term performance over key three- and five-year periods is also looking poor.

Hedge funds have made returns for their investors of 9.4 percent since 2011, and 39.6 percent since 2009, data from Hedge Fund Research shows, but an investment in a fund tracking global stocks would have made around 32 percent and 75 percent respectively.

"If you look at the average hedge fund versus equity or directional markets, this year has been disastrous," Roberto Botero, a director at Sciens Capital said.

"In general you would expect hedge funds to underperform in an equity market rally. But the issue is they have been underperforming for the last five years, with very few exceptions," Botero said.

The problem this year has centered on managers' inability to get ahead of central bank monetary action, which has driven markets, and the fact asset prices have headed upwards almost continously, leaving funds which "hedge" against downside risk left behind.   Continued...

A man rests inside a stock exchange in Kuala Lumpur December 19, 2013. REUTERS/Samsul Said