Hedge Funds Late to Party, Again, Running Flat in March Per BoAML

ESL INVESTMENTSHedge fund managers make a fortune calling the shots for their funds. Most charge 2-and-20-percent – 2 percent for management and 20 percent for performance – and, while they generally they earn every penny, lately not so much.

I still think hedge funds are worth watching, especially when it comes to their top picks – after all when you have millions, if not billions, invested in a company, the decision was certainly not arbitrary. Hedge fund managers usually have full staffs at their disposals, sometimes of hundreds, to research and analyze the markets so that they can make the best decisions for their funds – and they usually do a great job. For instance, Eddie Lampert‘s top eight picks returns over 44% in 2011 while hedge fund manager Bruce Berkowitz‘s top 16 picks were able to generate a return of roughly 36%, while the market was relatively flat. Unfortunately, performance like Lampert’s and Berkowitz’s has been the exception lately.

Some of the top hedge funds in the world lost significant sums last year. John Paulson‘s flagship fund lost over 50% last year, Philippe Jabre‘s Global Balanced Fund fell almost 27% and Whitney Tilson‘s T2 Partners lost just under 25%. Blame it on a volatile market, but the markets have been rallying lately – returning over 10% year-to-date – and hedge fund performance is still suffering. Bloomberg Businessweek reports that hedge funds have underperformed the S&P 500 since the rally in November, and, according to the Bank of America Merrill Lynch investable composite index, hedge funds have been nearly flat for the month of March through the 21st. Event-driven funds are up 0.57% so far for March. Merger arbitrage funds are doing almost as well, they are up 0.43%. Performance is worst amongst market neutral funds, which are down 1.19% so far this month.

Now, hedge funds are buying more aggressively to make up for lost time. According to the International Strategy & Investment Group, the percentage of hedge funds taking long bets on stocks rose to 48.6% last week, from 42% five months ago. This could mean that they are coming on board and adopting a slightly more bullish outlook of the market, albeit a bit late to the punch. The economy is recovering and there is every reason to think that its growth will continue.

But, there could be another issue at hand – shorts.

Many of the stocks that companies were shorting most – stocks like Netflix (NFLX), Bank of America (BAC) and Sears (SHLD) – have been some of the top performers so far this year. Netflix has returned over 66% to date while Bank of America’s share price has gone up over 70%. Sears is up over 130%. Those fund managers that took large short positions against them are now forced to buy positions in an attempt to cover their losing positions. “Hedge funds are at least part of the underlying strength in the recent move [in the stock market], and it has to do with not only buying stocks, but first and foremost covering,” says founder of Holland & Co, Michael Holland.  “It’s been a brutal time to be on the short side.”

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!