Another Quarter of Underperformance by Wall Street’s “Best and Brightest”

 

Investors saw 2013 start out with a bang with another phenomenal quarter of stock market returns. The S&P 500 index continued its historic run and returned 10% to investors. However those managing the billions of dollars in hedge funds were likely not so pleased by their first quarter results.

 

S&P 500 Q1 2013

Any investor holding a simple S&P 500 index fund in their portfolio (we compare several for you in our Fund Spotlight series article on S&P 500 index funds, found here) gained 10% on that investment over the last 3 months.  So surely those who charge customers millions upon millions of dollars every year to manage their money can beat a simple passive index fund, right?

 

It appears not.

 

As reported by CNBC, hedge funds averaged “only” 3% for the first 3 months of 2013, a 7% underperformance of the S&P 500.

 

I like to follow several indices provided by hedgefundresearch.com, a large list of which is found here:

 

Hedge funds have not had a great record over the last few years as we can see below:

Hedge fund index returns

 

Compare the numbers to the S&P 500 index performance (including dividends):

2010 – 15.06%

2011 – 2.11%

2012 – 16%

YTD (year to date) – 10%

 

Underperforming on all fronts.

 

What does the hedge fund industry’s performance (or lack thereof) mean for investors?

Just over the last 3 years and 3 months a $10,000 investment into an S&P 500 index fund would have grown to nearly $15,000! Compare that to the average hedge fund, which would have struggled just to not LOSE your money. (You would end up with about $10,220 today).

 

Shocking that investors are still willing to pay millions to have their money managed by these guys.

 

So when people ask me why they should learn about the stock market and take the few minutes to learn about investing, this information gives them all the information they should need for an answer. An investment of your time now can have truly enormous payoffs over the course of your investing career.

 

At Begin To Invest, we aim to get you started investing and help you along the way. We help you find the right investment funds, ways to keep your costs low and educate you so that you can outperform the “Best and Brightest” on Wall Street.

 

But we may need a higher goal then that…because lately they are making it pretty easy.

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