Hedge Funds’ Dirty Secret… Exposed!

by Wall Street Daily
+10.27%
Upside
34.46
Market
38.00
Trefis
MS
Morgan Stanley
Rate   |   votes   |   Share

Submitted by Wall St. Daily as part of our contributors program

It’s pretty picture time.

On Fridays in the Wall Street Daily Nation, we ditch our regular routine of commentary-based articles. And instead, we use graphics to present a handful of important investment and economic insights.

This week, I’m addressing the nagging feeling that stocks have run too high, too fast.

Then it’s on to a dirty little secret that hedge fund managers don’t want me to share. (Too bad… I am!)

So without further ado, it’s time to button my lips and let the charts do the talking. Enjoy!

Too Far, Too Fast? Not Even Close

We all know that bull markets don’t go straight up, uninterrupted. So with the S&P 500 up for six straight weeks, we must be overdue for a pullback, right?

Wrong!

Lest you think that the S&P 500′s current winning streak is unprecedented, compared to this time last year, the index isn’t up too far or too fast.

The current year-to-date gain of 6.6% trails the 7.3% rise we witnessed in 2012 through February 13.

While a pullback is inevitable, it’s not necessarily imminent. Heck, the S&P 500 didn’t take a breather last year until stocks had advanced 12.7%.

Bottom line: It’s important to know history, just in case it does repeat itself. I’m sure you’ll agree that stocks rising another six full percentage points from here wouldn’t be a bad thing. That is, as long as you’re invested in the market. (What are you waiting for?)

Who Needs Hedge Funds, Anyway?

For years, we’ve been told that the best investment strategies, the ones commandeered by hedge fund gurus, were off limits to us lowly retail investors. We’re simply not rich enough to deserve a spot in their funds.

Well, consider it a blessing! Turns out, the average hedge fund is nothing more than a high-priced index fund.

As Morgan Stanley’s (MS) Adam Parker reveals, the correlation between equity hedge funds and the S&P 500 keeps getting closer and closer to 1.

Remember, a correlation of 1 means the two investments move in perfect lockstep with each other. And we’re pretty darn close to that reality.

Bottom line: We don’t need no stinking hedge funds and their 2% expense ratios and 20% profit-sharing fees. Not when we can enjoy almost identical returns with a low-priced ETF like the Vanguard S&P 500 Fund (VOO). Its expense ratio checks in at a measly 0.05%.

That’s it for this week. Before you go, though, let us know what you think of this weekly column – or any of our recent work at Wall Street Daily – by sending an email to feedback@wallstreetdaily.com or leaving a comment on our website.

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!