Hedge Funds Underperform Stocks in Q1

Thursday, 04 Apr 2013 07:59 AM

By Dan Weil

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Hedge funds badly lagged stocks in the first quarter, as a hedge fund index compiled by Bank of America gained only 3.3 percent, while the Standard & Poor’s 500 Index had a return of 10.6 percent.

Hedge funds’ underperformance came as they sold stocks and instead allocated money to commodities and the dollar, Bank of America said in a report obtained by CNBC.

Hedge funds historically have outperformed stocks in the first quarter, gaining an average of 3.1 percent during the quarter since 1995, compared with 1.8 percent for the S&P 500, according to the report.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.

As for individual funds, Steven Cohen’s SAC Capital, which is the subject of a massive legal investigation, scored a return of 4 percent, landing it in the middle of the pack, according to CNBC. The fund typically outperforms its peers by a wide margin, according to CNBC.

Third Point Partners, Dan Loeb’s firm, chalked up a strong success, as its Ultra Fund surged 13.3 percent. A new position in Cheniere Energy, a liquefied natural gas supplier, soared 49 percent. Ultra’s biggest holding, Yahoo, gained 19 percent.

Plays on mortgages and Japan also turned out well for Loeb, as did a new position in Virgin Media.

Event-driven funds did best last quarter, gaining 5 percent, according to the report. Macro funds did the worst, standing little changed.

With all the legal investigations going on, hedge funds have to worry about more than just their returns.

“The challenge for the hedge fund industry is to bridge the lack of trust both with fund leadership as well as the financial service regulators,” Jordan Thomas, a partner at the law firm Labaton Sucharow, tells The Wall Street Journal.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.

© 2014 Moneynews. All rights reserved.

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