Many investors and investment committees have flocked to alternative assets in recent years in a desperate search for better performance.
Unfortunately, in most cases, the performance of these funds - purportedly run by more clever and sophisticated money managers than those at traditional investment management shops - have not only failed to produce returns as advertised.
Mary Ann Bartels of Merrill Lynch has been tracking the hedge fund community for several years now, and puts out a regular report on their performance.
Here's what she said in a report published yesterday;
Hedge funds up 1.26% in 1H’12, underperforming S&P 500
The global diversified hedge fund composite index was up 1.26% for the first half of 2012, underperforming the S&P 500’s 8.31%. Convertible Arbitrage fared the best, up 4.14%. Short bias performed the worst, down 7.11%.
The 12 month numbers are even worse.
For the year ending June 30, 2012, the composite return of diversified hedge funds was -5.22%.
Returns by category ranged from -0.62% for fund specializing in convertible arbitrage to -10.47% for equity long/short strategies (supposedly a field where smart managers should shine).
By comparison, for the last 12 months, the S&P 500 was up +5.3%.
Now, to be sure, the last year has been a difficult one for active managers. As I mentioned in an earlier post, most of the outperformance in the equity markets has been in lower quality securities, or one stock (Apple is up +60% over the last year).