Basically the title. Hedge funds underperform every year as compared to broader ETFs like S&P500 by more than 10%! Given this, who invests in hedge funds? Are they stupid or am I stupid?
[https://www.aei.org/carpe-diem/the-sp-500-index-out-performed-hedge-funds-over-the-last-10-years-and-it-wasnt-even-close/](https://www.aei.org/carpe-diem/the-sp-500-index-out-performed-hedge-funds-over-the-last-10-years-and-it-wasnt-even-close/)
In: 128
First response: Take any cherry picked data set such as a the one in the article with a massive grain of salt.
Second: What if they went back to 2000? I don’t know if it would be markedly different but active management needs volatility to outperform broad benchmarks. It creates opportunities instead of why we have seen for the past 15 years. An extended bull market.
The biggest argument between passive and active investing is fees. Cost of trading and managing active funds is difficult to offset.
It’s no surprise HFs outperformed in 2008, a year of high volatility and markets sharply down.
Third: Hedge funds in general are for qualified investors and invest in an array of securities both long and short. So measuring performance vs. S&P isn’t the best comparison.
For everyday investors it doesn’t make sense due to liquidity constraints mostly.
The adage that your better off just owning the S&P over the long term is mostly true across long time spans.
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