Hedge funds are terrible at investing, again
🔸 Plus: Stock market forecasts are always wrong 🔸 “When your friends are richer than you” 🔸 Should you let friends charge their EVs at your house? 🔸
Your 2-minute guide to demystifying money and making you richer
The markets, year-to-date
S&P 500: 5,942.47 ⬆️ 0.28%
FTSE 100: 8,223.98 ⬆️ 0.62%
Bitcoin: $98,054.68 ⬆️ 4.89%
GBP to USD: $1.2422 ⬇️ 0.72%
GBP to EUR: €1.2044 ⬇️ 0.34%
(As of Friday market close.)
Hedge funds, once again, prove they are terrible at investing
Hedge funds are investment houses whose task is to generate above-average returns for high-net-worth individuals and institutional investors — the kind of people who can afford to take risks with their money.
Hedge funds employ the most sophisticated professional money managers on the planet.
These kings of Wall Street do not come cheap. They charge their customers “2 and 20” — a 2% annual management fee charged on all assets invested, win or lose; and a 20% cut of your profits.
So if you had £1 million invested, the fund would charge £20,000 for managing it.
And if your investment rose by 20%, or £200,000, then the fund would take £40,000 of your profits. Which would leave you with £1,140,000 — a gain of about 14%.
So how did these expensive geniuses do last year?
Badly, according to Reuters.
Of 28 hedge funds who disclosed results, only three — three! — performed better than the U.S. stock market as a whole, as represented by the S&P 500. The S&P gained 23%.
One of the three successful hedge funds gained 36.1%, which would have returned to its customers pretty much exactly the same as the S&P after the 2-and-20 fees.
“Hedge funds in 2024 averaged a 10.7% return in the year through November, according to PivotalPath, versus 5.7% in the same period in 2023,” Reuters reported.
To put this in perspective, the S&P returned 24% in 2023 and 23% in 2024. Hedge funds generally perform half as well as the market as a whole, in other words.
OK, so hindsight is easy.
What if you had followed Moneyin2’s advice in 2024?
Not bad, it turns out.
We recommended investing your savings in an S&P 500 index tracking fund. We also suggested you might invest a minority portion of your funds in a tech-heavy index like the Nasdaq. And we said maybe put a tiny amount of money — certainly less than 3% of your assets — into the cryptocurrency ether, which pays a 2% yield if you “stake” it on the blockchain. Here’s how those investments played out in 2024:
Things we recommended
S&P 500: +23%
Nasdaq Composite: +30.78%
Ether, the cryptocurrency: +48.90%
If you had taken even just one of our recommendations you’d be doing better than a hedge fund.
We also urged you to stay away from certain things
Things we did not recommend
FTSE 100: +5.91%
Bitcoin: +114.72%
Gold: +27.14%
Dow Jones Industrial Index: 13%
Cash high-rate savings: +4.8%
AIM index: -4.21%
There are two obvious surprises here: Bitcoin did very well. We recommended avoiding it because it is risky and volatile. Your entire life savings should not be in crypto!
Gold did even better than stocks last year — and that’s because the price of gold has more closely tracked the price of assets generally in recent months. Over a longer timeframe, stocks beat gold:
Here are those hedge fund results in full:
Fund name, % rise in 2024
Light Street … 59.4
Discovery Capital … 52
D.E. Shaw - Oculus … 36.1
Cinctive Capital … 22.8
Marshall Wace - Market Neutral Tops … 22.59
Citadel Tactical … 22.3
Schonfeld Fundamental Equity … 21.1
Schonfeld Strategic Partners … 19.7
CFM IS Trends … 18.94
D.E. Shaw - Composite … 18
Citadel Equities … 18
Marshall Wace - Alpha Plus … 15.86
Citadel Wellington … 15.1
Millennium Management … 15
Marshall Wace - Eureka … 14.32
CFM Stratus … 14.22
CFM Cumulus … 14.12
CFM Systematic Global Macro … 13.32
CFM IS Trends Equity Capped … 12.42
CFM Discus … 12.01
Graham Proprietary Matrix … 11.9
Bridgewater Associates - Pure Alpha 18% vol … 11.3
Winton - Multi-strategy systematic fund … 10.3
Anson Investments Master Fund … 10
Citadel Global Fixed Income … 9.7
Aspect Diversified Fund … 7.75
DUNN WMA program … 7.28
Transtrend … 5.9
Passive beats active, again!
The Moneyin2 Guide to Wealth
The Moneyin2 Guide to Wealth will get you the biggest return on your savings by maximising cash matches from your employer, free cash from the government, and shielding your investment gains from tax. It takes you step-by-step through the world of pensions, SIPPs, ISAs and ETFs — all in plain English.
And for dessert …
Stock market forecasts are always wrong. A bunch of charts from Joachim Klement showing why you should ignore forecasts.
“When your friends are richer than you”. Ben Carlson looks at jealousy and reality.
“The stock market usually goes up”. A bunch of charts from Sam Ro showing that stocks may be volatile but they are not that risky.
Letting your friends charge their EVs at your house when they visit is surprisingly expensive.
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