Regular readers know we think it’s a cryin’ fuckin’ shame that low-cost, passive investment vehicles that track benchmarks inflated by the post-crisis central bank liquidity tsunami have all but relegated active management to the dustbin of history.
As we wrote in “One Manager Warns: ‘Today’s Weapon Of Mass Destruction Is A 3-Letter Word: ETF,‘” it’s almost as if investors don’t understand that good coke and Perrier-Jouët is expensive.
I mean shit, you can’t fund a weekend of debauchery in the Hamptons by charging people 10 basis points.
But nobody seems to be listening. Because no matter how many times the “2 and 20” superstars try to explain that Ferraris aren’t cheap and that an eight ball of coke can be here one minute and gone the next depending on how many Xany-ed-out groupies are grabbing for the mirror and straw, you keep buying ETFs and the benchmarks they track keep going up.
Which helps to explain the following hilarious YTD performance chart out Friday from Goldman:
Yes sir, that’s the kind of performance I’d be willing to pay obscene fees for.
Even better, they’re also leveraged to the goddamn hilt. Check this out:
Hedge funds lifted leverage to post-crisis highs as their most popular long positions outperformed in a rising equity market. The Goldman Sachs Prime Services Weekly shows that, after bottoming in mid-2016, hedge fund net and gross exposures have continued to rise. Net exposure (73%) is now roughly in line with its cycle highs reached in 2013, while gross leverage (234%) has soared to new post-crisis highs.
Goldman notes that “this dynamic has contributed to a virtuous cycle as our Hedge Fund VIP basket of the most popular hedge fund long positions rallied, outperforming the S&P 500 by 360 bp YTD (10.1% vs. 6.5%).” Thank God. At least something is outperforming for the hedgies.
Anyway, here’s a look at the most popular hedge fund longs:
And here are the popular shorts:
Finally, here’s a snapshot of hedge fund ETF ownership: