We have been telling our readers not to invest in the S&P 500 ETFs and instead invest in the top 5, top 10, or top 20 hedge fund stocks because these large-cap stocks historically outperformed index funds. Warren Buffett doesn’t like hedge funds because of their high fees and recommends index funds. However, investors don’t have to pay hedge funds anything to invest in their top 10 stock picks. Let’s take a look at how our approach fared recently.
In 2019, the top 10 hedge fund stocks returned 41.4% and beat the S&P 500 Index funds by 10.1 percentage points. You could have been 10% richer if you had followed our recommendation in 2019. Things didn’t change much in 2020. The top 10 hedge fund stocks returned 1% in 2020 (through May 1st) and beat the S&P 500 Index funds by an additional 12.9 percentage points. If you had been listening to our advice, you wouldn’t have noticed the effects of the coronavirus crash in your portfolio at all. Also, you would have been 12.9% richer.
NIKE, Inc. (NYSE:NKE) is one of the top 30 stocks among hedge funds. NIKE Inc shares actually performed inline with the market this year, but NKE outperformed the market by about 7 percentage points since the end of 2018. Nike is one of the great American brands, and it performed exceptionally for a consumer stock. However, when we read legendary value investor Bill Miller’s 2020 Q1 investor letter, his reasoning made perfect sense. In the following video you can watch why Bill Miller thinks it doesn’t make sense today to invest in NIKE, Inc. (NYSE:NKE) and 6 other recession stocks that performed well so far this year.
Bill Miller is no ordinary investor. His hedge fund returned 120% in 2019. Bill Miller came to fame for beating the S&P 500 Index for 15 straight years when he was at Legg Mason.