Low cost indexing might have been vindicated in the starkest way possible. According to Goldman Sachs data, just 13% of hedge funds are outperforming the S&P 500, and a fifth of all hedge funds are actually in the red during 2012.
To make matters worse, hedge fund managers have crowded into the same trades, with turnover at a record low, Goldman reports.
What does this mean?
“Hedge fund investors are paying 2% fees up front and 20% of profits thereafter to managers delivering poor performance and apparently doing little about it,” CNBC said Monday, when discussing the report.
“Many hedge funds turned into mutual funds–but with higher fees and worse performance–this year,” Mike Murphy, who runs hedge fund Rosecliff Capital, told the network. “Hedge funds have underperformed because they have been hedging against a massive market correction as the memory of 2008 is still fresh in everyone’s mind.”
“It’s been a tough year, but better times are ahead,” added Murphy.