Top 10 Hedge Fund Stocks Are Killing The Market

You can’t beat the market by actively picking stocks, do yourself a favor and invest in index funds. How many times in the last decade have you heard this “advice”? Even the legendary billionaire investor Warren Buffett lectured investors about the “wisdom” of investing in index funds. Last month, when the S&P 500 Index plunged nearly 30% in a matter of weeks, I bet your financial adviser told you not to panic, stay the course and not sell.

Do you know what we did? We told our investors that a recession is coming and asked them to short the market to protect their portfolios. And that was at the end of February. After the stock market bottomed, when Wall Street analysts were telling everybody that “recent lows will be retested”, we told our subscribers to cover their shorts and buy, buy, buy.

Before this coronavirus bear market, when the S&P 500 Index was riding high, I read countless articles about how hedge funds as a group can’t beat the market. Those financial journalists are idiots. Hedge funds aren’t magicians. It is very difficult to beat the S&P 500 Index that is running high on steroids (that’s what I call the 2019’s Fed-induced stock rally) with a portfolio that is only 50% long (or %50 hedged). During the first quarter of 2020, the S&P 500 Index lost 19.4% and hedge funds beat the market by a huge margin. Guess what the same journalists said this time? Nope, they didn’t praise hedge funds for beating the market, they criticized them for delivering negative returns.

things you didn't know about hedge funds


Here is an objective analysis of hedge funds. Hedge funds are good at stock picking, but they couldn’t beat the market in 2019 for two simple reasons. First, they are hedged. Their net beta exposure is around 50%. So, they can only return about half the market’s return (plus some alpha and minus the fees). Second, they charge an arm and a leg for their services. Investors didn’t mind paying 2% of their capital and 20% of their returns as fees when hedge funds were returning 30% per year in the 90's. However, this fee structure is ridiculous in today’s market. There are only a few hedge fund managers who deserve this kind of compensation scheme. One of them is Michael Castor. When the S&P 500 lost nearly 20% in Q1, Castor’s Sio Capital returned more than 7% after fees. You can watch our latest video about Dr. Castor’s latest coronavirus analysis below:

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Disclosure: Disclosure: No positions in these 5 stocks because I search for even more promising stocks than these 5 hedge fund stocks and recommend them in Insider Monkey’s premium ...

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