Return Chasing, Everyone’s Doing It
Blaine Rollins | May 17, 2015 01:55AM ET
And if everyone is doing it, shouldn’t you too! Well, of course we’re being sarcastic, but the fact is, as investors, we tend to focus on those assets and/or strategies that had the strongest or weakest recent performance. We discussed this a rough go the last couple of months. This is no fault of the funds, but instead the return chasing investors who seem to miss out on large gains, invest after seeing what they missed and who then get impatient when returns stagnate or turn negative. Who knows how investors will respond to a bump in the road for a strategy they just purchased, but if history is any guide, they have very short memories and very little patience. And thus the cycle will likely continue as investors sell the underperforming strategy, buy the outperforming strategy and once again set themselves up for perpetual disappointment.
Liquid Alts Corner
The Data
Returns were mostly flat in April, with the managed futures category being the exception, as it reversed course, losing nearly 3% during the month. However, it still remains the strongest performing strategy on a 12 month basis, earning 14.5%, or 10% more than the second place finisher, long/short equity. Longer term, long/short equity still has the best 3 year performance with an annualized return of more than 6%.
Flows into the alternative space were dominated by multialternative and managed futures, as long/short equity and market neutral funds saw assets leave during April, while long/short credit was roughly flat. Multialternative funds had inflows of $2.3 billion, while managed futures brought in $800 million. Long/short equity had $350 million of net outflows, driven almost entirely by one fund that shed more than $600 million in April, bringing its trailing twelve month outflows to $13 billion. This fund has disappointed of late, but has had a strong long-term track record, which allowed it to raise a substantial amount of money in 2013. While we have no opinion on this specific fund, its trials and tribulations do reinforce our concerns about the herding behavior of investors, discussed above.
Get The News You Want
Hedge Funds In The News
Mr. Loeb, who runs the $17.4 billion hedge fund Third Point, told an audience of hedge fund faithful on Wednesday that Mr. Buffett “has a lot of wisdom, but I think we need to be aware of the disconnect between his wisdom and how he behaves.”
He was taking aim at a public bet that Mr. Buffett made against the hedge fund industry, which Mr. Buffett believes cannot outperform the broader market and, specifically, the Standard & Poor’s 500-stock index.
Speaking to shareholders at an annual gathering for his company Berkshire Hathaway (NYSE:BRKa) over the weekend, Mr. Buffett pointed out that the S&P 500 had gained 63.5 percent since 2008, while an index of hedge funds had increased by 19.6 percent over the same period.
On Wednesday, Mr. Loeb used his one-on-one interview at the SkyBridge Alternatives Conference, or SALT, to retaliate.
“I love reading Warren Buffett’s letters and I love contrasting his words with his actions,” he began. Lest anyone think it was a put-down, he quickly added, “He’s a very wise guy.”
But wise or not, Mr. Loeb had a few critical things to say about Mr. Buffett. “I love how he criticizes hedge funds, yet he had the first hedge fund,” Mr. Loeb said. “He criticizes activists, he was the first activist. He criticizes financial services companies, yet he loves to invest in them. He thinks that we should all pay taxes, yet he avoids them himself.”
To this, the audience erupted in laughter.
Every penny counts!
Paul Singer and his $25 billion dollar hedge fund firm, Elliott Management, really want their money back and every dollar counts. More than a decade ago Argentina defaulted on debt that Elliott, along with many other hedge funds, held. Since then Elliott has scoured the world trying to seize assets, including an Argentine naval ship and the country’s presidential plane. However, Elliott’s sights aren’t always set so high. Most recently the fund has been targeting two Argentine bank accounts frozen in Belgium. These accounts hold a whopping $58,000, but I guess when you are trying to collect on a $1.6 billion debt every penny counts!
Quants beware, that code is not yours
Last month we mentioned some quants that got in trouble for stealing trading model code from Two Sigma. In an unrelated case, a former Goldman Sachs programmer, Sergey Aleyikov, was convicted for a second time of stealing code when he planned on leaving Goldman to join trading firm, Teza Technologies in 2009. His first conviction for theft of trade secrets and espionage was overturned after an appeals court determined that code is not physical property and therefore he could not be charged with a federal theft statute. For more details, Wired.com has a good write-up of the story.
Disclaimer: The information presented here is for informational purposes only, and this document is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. The hyperlinks included in this message provide direct access to other Internet resources, including Web sites. While we believe this information to be from reliable sources, 361 Capital is not responsible for the accuracy or content of information contained in these sites. Although we make every effort to ensure these links are accurate, up to date and relevant, we cannot take responsibility for pages maintained by external providers. The views expressed by these external providers on their own Web pages or on external sites they link to are not necessarily those of 361 Capital.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.