Hedge Funds Trail S&P 500 by 10 Percentage Points, Goldman Says

Hedge Funds Trail S&P 500 by 10 Percentage Points, Goldman Says

Hedge funds’ returns have stayed “lackluster” this year, with the $2.3 trillion industry trailing the gains of the Standard & Poor’s 500 Index by about 10 percentage points, according to Goldman Sachs (GS) Group Inc.

Hedge funds gained 5.4 percent on average through May 10, compared with a 15.4 percent rise for the S&P 500 (SPX) and a 14.8 percent increase for the typical mutual fund, a team of Goldman Sachs analysts led by Amanda Sneider and David Kostin wrote in a report released today.

Hedge-fund managers have been hurt in 2013 by their bearish wagers on stocks, with “popular” shorts such as Johnson & Johnson (JNJ) and Gilead Sciences Inc. rising more than the broader equity market, Goldman Sachs said. Fewer than 5 percent of the hedge funds tracked by New York-based Goldman Sachs are beating the S&P 500 or a typical mutual fund that buys stocks of the biggest U.S. companies.A “multi-year trend of lackluster hedge-fund returns continues in 2013,” the analysts wrote. “Strong long performance was not enough to outweigh the drag from popular short positions.”

Hedge funds, which typically charge clients a 2 percent management fee and 20 percent of any investment gains, are private pools of capital that can bet on both rising and falling asset prices. From the start of 2009 to the end of April this year, the average fund has risen 21 percent after fees, compared with a 77 percent gain for the U.S. benchmark S&P 500, data compiled by Bloomberg shows.

Hedge funds are currently 53 percent “net long,” the highest percentage since the first quarter of 2007, according to Goldman Sachs. The figure is derived by subtracting bets that stocks will fall from wagers that they will rise.

The stocks hedge funds are most bullish on include American International Group Inc. (AIG), Google Inc., Apple Inc. and Citigroup Inc., according to Goldman, which analyzed equities that appear most frequently among the top 10 holdings of fund managers.

Stocks hedge funds are most commonly shorting include Johnson & Johnson, Intel Corp., International Business Machines Corp. and Gilead (GILD), the Goldman Sachs analysts said. In a short sale, traders borrow shares from a broker and sell them, hoping to buy back the stock at a lower price. They then return the borrowed shares to their broker and pocket the difference.

To contact the reporter on this story: Jesse Westbrook in London at jwestbrook1@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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