• Hedge Funds Have Missed This Rally And Why That Is A Good Sign

    by  • August 22, 2013 11:32 am • Broad Market Analysis, Charts to Watch, Quick Hits • 4 Comments

    Here are two things that caught my eye the past 24 hours.

    First up, hedge funds have done horribly this year.  One of the bigger picture reasons we remain in the long-term bull camp is hedge funds and institutions have missed a lot of this multi-year rally.  Most have been in cash, bonds, or metals – all have performed poorly versus equities.  For this reason, I think most pullbacks in stocks will be very short in duration, before money is put to work.

    A report from Goldman Sachs circulated yesterday that found out of 708 hedge funds (with $1.5 billion in assets) not even 5% have beaten the SPX this year.  In fact, the average hedge fund was up just 4% YTD, versus the SPX up about 20% at the time of the study.  Incredibly, 1 in 4 hedge funds were actually lower.

    Next up, the Yale School of Management does a few different stock market surveys and one that shows how confident investors are the market will be up in one year was eye-opening.

    Looking at individual investors, this was actually lower at the start of 2013 (red line) than anytime dating back to 1997.  In other words, there was more fear over the market at the start of 2013 (remember all the Fiscal Cliff drama?) than at the depths of the financial crisis.  Even now, after a rebound in confidence, it is still beneath previous levels of confidence since this recent bull market started.  From a contrarian point of view, that is a great sign.


    4 Responses to Hedge Funds Have Missed This Rally And Why That Is A Good Sign

    1. rk
      September 4, 2013 8:29 pm at 8:29 pm


      Hedge Funds have not missed the rally so to speak. They have underperformed due to their heavy hedging activity. This is per Bernie Schaeffer! If they had simply stayed long, and not hedged, they would have done better!

    2. Ryan Detrick, CMT
      August 24, 2013 4:56 pm at 4:56 pm

      Jennifer, thanks for the comments. Don’t have the data, they don’t share it. To me, looks like ’08 was the lows. ’07 definitely sank late in the yr.

    3. Ryan Detrick, CMT
      August 24, 2013 4:53 pm at 4:53 pm

      They don’t share the data, so I haven’t done much with it. Just can eyeball the chart.

    4. jennifer
      August 23, 2013 1:31 am at 1:31 am

      Ryan – the 2nd chart doesn’t really appear to be correlated to the market. Have you plotted it against returns? For example, the expected returns by Individuals at 2007 was the lowest it had been on record…

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