Salient to Investors:

Matthew C. Klein writes:

  • Hedge Fund Research says the S&P 500 index with dividends reinvested beat the average hedge fund over the past decade.
  • There are always periods when certain asset classes did better than others. E.g., gold from the middle of 2001 increased by more than 600 percent over the following decade, while the S&P 500 stock index with reinvested dividends returned just under 20 percent. But stocks dramatically outperformed gold in the following 2 years.
  • Many types of hedge funds do very different things, so it makes no sense to lump them together as a single asset class and then compare them against stocks.
  • Over short periods, the relative performance of different funds is mostly determined by luck, whereas skill becomes increasingly important as the time horizon lengthens, The performance of the “average” fund does not indicate whether or not there are funds worth investing in.
  • The best approach is to diversify into assets that tend to rise over time but that move in different directions over shorter periods, and this equally applies to hedge fund allocations.

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