From The Economist: WHEN it comes to brainboxes, the name
“Nobel” has a certain ring. But news that the Nobel Foundation plans to
increase its investment in hedge funds, because years of low returns forced it
to cut cash prizes in 2012, is one to leave laureates scratching their
eggheads. The past year has been another mediocre one for hedge funds. The
HFRX, a widely used measure of industry returns, is up by just 3%, compared
with an 18% rise in the S&P 500 share index. Although it might be possible
to shrug off one year’s underperformance, the hedgies’ problems run much
deeper.
The S&P 500 has now outperformed its hedge-fund rival
for ten straight years, with the exception of 2008 when both fell sharply. A
simple-minded investment portfolio—60% of it in shares and the rest in
sovereign bonds—has delivered returns of more than 90% over the past decade,
compared with a meagre 17% after fees for hedge funds. As a group, the supposed sorcerers of the
financial world have returned less than inflation. ….
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