“What do you mean, ‘we,’ Kemo Sabe?”
Don’t get sucked in.
Did you wake up on Wednesday morning asking yourself whether the 2 and 20 crowd’s equity exposure hit new record highs in Q3?
“…they turned on poor Hugh like a pack of rabid dogs.”
“The only people who don’t think this market is simple are hedge funds and perma-bears who try to make it complex. Yet even as they are continually wrong, they are right.”
“More generally, however, many macro funds aren’t structured to make money by “trading macro.” Investor pressure to deliver steady returns has taken macro traders away from making big-picture bets on economic and policy developments.”
“What if Warren Buffett’s Berkshire Hathaway had a 12% annual stop loss, after which it would quit trading until the new calendar year?It turns out that Buffett would have been stopped out in 18 of the 30 years.”
“Based on the quarterly 13F filings and estimated short positions of the equity holdings of 952 funds, we estimate that hedge funds’ net stock exposure increased to $792bn notional from $730bn QoQ, surpassing the Q2 2015 peak to a record high. HF long positions stood at $1.36trillion notional at the start of Q2 2017, tied with the Q2 2015 high.”
Right, so the thing about “alpha” is that it’s really fucking hard to generate when benchmarks only go up. Throw in the rampant proliferation of retail-friendly vehicles that track those benchmarks at a cost of just a few basis points in fees and you’ve got a veritable nightmare scenario for coke-sniffing, Perrier-Jouët-chugging, “2 and 20”-charging, Hamptons…
Recently, I wrote some stuff about hedge funds and mutual funds. If that’s the kind of thing you’re into (or if you want to read about hookers, groupies, Xanax, cocaine, and Maseratis) you should check out these two posts: Hedge Funds Are Still Trailing The S&P And Cocaine Ain’t Gettin’ Any Cheaper 2/3 Of Growth…
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…
“The weapons of mass destruction during the Great Financial Crisis were three-letter words: CDS (credit default swap), CDO (collateralized debt obligation), etc. The current weapon of mass destruction is also a three-letter word: ETF (exchange-traded fund). When the world decides that there is no need for fundamental research and investors can just blindly purchase index funds and ETFs without any regard to valuation, we say the time to be fearful is now.”
Earlier this month, we brought you “It’s Probably Too Late: Hedge Fund Performance ‘Improves,’ But Market’s Patience Is Gone.” In it, we highlighted the fact that hedge funds’ risk-adjusted performance is actually improving. But we also noted that at this point, it probably doesn’t matter. The passive/active ship has sailed. That horse has left the…
“In the meantime, active managers might need a bit of therapy to restore their relationship with the market.”