Hedge funds punished for being too defensive [SoberLook]


After performing poorly in 2011 (see this discussion), hedge funds on average are barely up for the year. Many loaded up on sovereign CDS protection in preparation for the Eurozone mess worsening, but got blown out by Draghi’s “save the euro” campaign (see discussion). Some maintained large cash positions or significant short equity/credit exposures, all of which resulted in underperformance.

Broad hedge fund index (CS/DJ) vs S&P500 (through 9/7/12)

Being defensive (on top of charging high fees) simply has not been a “winning” strategy lately. It’s difficult to actively manage assets based on the whims of central banks rather than economic fundamentals.

 

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