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/)
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Why buy an ETF of the S&P if just buying TSLA or AAPL beats it? Well, because you’re not sure what’s going to be the best stock in the future, so you buy a bunch of difference ones (the S&P) because the diversification improves your risk adjusted return. In the presence of uncertainty, you make a bunch of (somewhat) uncorrelated investments instead of just putting all your money in one thing.
Same idea with hedge funds – the goal of many (most?) hedge funds is not to beat the S&P, but to provide returns uncorrelated to it. A mix of long equity, credit, macro etc investments has a better risk adjusted return than simply going long equity.
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