Billionaire Hedge Fund Index is up 17% YTD. The index also gained 2.9% in March. Today we have been reading articles about the Hennessee Hedge Fund Index. According to media reports, hedge funds gained 0.6% in March and 4.6% in the first quarter. These articles compare hedge fund returns to the S&P 500 index. This is comparing apples to bananas (not even oranges). These articles also state that the last time hedge funds outperformed the market was in 2008.
S&P 500 index doesn’t try to time the market and it is 100% long at all times. Hedge funds partially hedge their positions. Even if they don’t have any alpha, they will underperform the market in up years and outperform the market in down years. Yesterday we wrote an article calculating that hedge funds collected 47% of their total returns as fees over the past 5 years. Most of their alpha goes to hedge fund managers and turns them into billionaires. If your goal is to measure whether hedge funds have any ability to pick winners, you should really take a closer look at the stocks in the Billionaire Hedge Fund Index (Warren Buffett, George Soros, John Paulson, Jim Simons, David Einhorn, Ray Dalio, and T. Boone Pickens are some of these fund managers).
The last time we checked, Billionaire Hedge Fund Index was up 16.7% vs. 12.3% for the S&P 500. The stocks in the index managed to beat the market by 4.4 percentage points. That was middle of March. The index kept up its strong performance over the last few weeks. As of April 9th Billionaire Hedge Fund Index is up 17% vs. 10.6% for the S&P 500 index. As you can see billionaire hedge fund managers’ top stock picks beat the market by 6.4 percentage points. Billionaire hedge fund managers’ stock picks also beat the average return of hedge funds by 12.4 percentage points (this is comparing apples to bananas though). Insider Monkey believes that over the long-term the market will go up significantly and hedging won’t benefit investors on the average. We also know that hedge fund managers charge an arm and a leg for their services (they deserve it on the average though). We believe hedge fund investors can do better on the average by imitating best hedge fund managers’ best stock picks. Billionaire Hedge Fund Index is an example of this. Next month Insider Monkey will start publishing a quarterly newsletter that will provide an in-depth analysis of hedge funds’ stock picks. Our idea is simple: imitating best stock picks of best hedge fund managers is better than investing in hedge funds.