Despite their reputation for their investment prowess, hedge funds haven’t exactly set the financial world on fire over the past five years. As a recent Bloomberg article pointed out, hedge funds have underperformed the S&P 500 by 97 percentage points since the end of 2008.
Warren Buffett agrees.
In 2008, The “Oracle of Omaha” made a $1-million bet against the industry with hedge fund Protégé Partners. The terms were straightforward. Protégé Partners picked a group of hedge funds that it expected to outperform an S&P 500 index fund over the course of 10 years. According to Fortune, thanks to the huge run-up in the S&P 500 in the last few years, hedge funds are already getting trounced. And barring another market meltdown like 2008, they have little hope of catching up.
There are a couple of reasons for hedge funds’ poor showing.
Read more about hedge funds and how to know what they are investing in at Eagle Daily Investor.