Forty percent of hedge fund investors are dissatisfied with their returns, and eighty percent are considering changing fund managers, but 38% plan to increase the amount of their hedge fund investments over the next year, according to the Wall Street Journal (“Investors Disappointed with Hedge Funds, But Sticking With Them”), citing a recent survey.
From January through September, the Standard & Poor’s 500-stock index fell by nearly 10% while hedge funds lost only 5.4%. Many hedge fund managers cut their risk exposure during this time, but were stuck on the sidelines as stocks rallied in October. As a result, hedge funds overall rose less than 3% in October, while the stock market rose nearly 11%. This underscores how most hedge fund managers have no more ability to time markets than the average investor, and can get whipsawed just as badly when they try it.
Hedge funds are often marketed as having a low correlation to other asset classes, such as the stock market. However, during major downward moves by the stock market, many hedge funds have shown a high correlation to the stock market and sustained significant losses.
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