An interesting analysis from Berry Ritholz’s The Big Picture:
At Hedge Funds, Breakeven is the New Black
The article highlights how many hedge funds have under-performed the market in 2011.
From personal experience managing funds, I can concur with the tribulations of many hedge fund managers regarding 2011. The one strategy that seemed to work very well this year – buying on new lows – would be something very few investors would do. Typically, that strategy destroys a portfolio and therefore few would do it.
However, one wonders if people had advanced knowledge of European headlines because after July, headlines from Europe have driven the market for the most part. How anyone would know to buy and be redeemed by a subsequent positive headline is beyond me. I do have to give kudos to short term and options traders who follow sentiment and short term extremes in psychological and technical ratios. They appear to have worked well for many of those guys. However for some value managers, some momentum managers and some breakout managers, this year has been rough.
As an addendum, I point to this story from last August about Stanley Druckenmiller, former George Soros trader and super successful hedge fund manager in his own right quitting after saying he couldn’t reproduce his past returns in the current market climate: