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Hedge funds continue to disappoint

(MoneyWatch) The first half of 2013 brought hedge funds little relief from their historically poor performance. Despite the historical evidence (as presented in "The Quest for Alpha"), hedge funds continue to attract great attention -- especially from high net worth investors. So instead of hedge fund hype, I'll simply provide you with evidence of their poor performance.

The table below presents the returns of the HFRX Global Hedge Fund Index and compares it to the performance of various stock and bond indexes. The HFRX Global Hedge Fund Index follows an asset-weighted approach to accurately reflect the changing opportunities in the hedge fund industry.

In the first half of 2013, the HFRX index returned 3.2 percent. As is our practice, we'll compare that return to that of the performance of three standard 60 percent stock/40 percent bond portfolios. Each of the portfolios equally weighs the stock indexes in the table above for the equity portion (meaning each index is 6 percent of the total portfolio). The following bond indexes are used for the fixed income portion:

  • Portfolio A uses one-year Treasury notes for its bond allocation.
  • Portfolio B uses five-year Treasury notes.
  • Portfolio C uses 20-year Treasury bonds.

As you can see, when it comes to hedge fund performance, the evidence, both historical and current, speaks for itself.

Image courtesy of Flickr user 401(K) 2013