Hedge funds are bleeding out, but their mistakes are your opportunity.
- A Simple, Powerful Strategy to Beat the Hedge Funds at Their Own Game
- This Monumental Industry Upheaval Will Give Us a Huge Opportunity
- Why Hedge Funds Are Bleeding, and Why You Need to Pay Attention
- Here's Why Hedge Funds Are Poised for a Comeback - and Why It Matters to You
- Why Investors Shouldn't Bother with Hedge Funds Anymore
- How To Make Sense of a Pathological Rally
- List of Carl Icahn Holdings Loaded with Stocks You May Own
- For the Likes of Nelson Peltz and Carl Icahn, the Targets Are Getting Bigger
- Stocks the Largest Hedge Funds Are Buying Today
- Top Hedge Funds Reveal These Best Investing Ideas
- The Secret Behind My Hedge Fund Trade on Housing
- How Wall Street Plays the Dark Pools Game
- Meet the New "Masters of the Universe" and Profit from Them
- What Can You Buy For $616 Million? Not Much, If You’re Steven A. Cohen
- A Simple Way For the Average Guy to Have His Own "Hedge Fund"
- Distressed Debt Investing Now a Favorite Move for Hedge Funds
The S&P 500 has outperformed hedge funds every year since 2008 - and investors are deserting them in droves.
Hedge funds' massive underperformance isn't just because funds are no longer hedging against market moves.
They call Wall Street's big hedge fund managers the "Masters of the Universe," the ultra-wealthy, extremely powerful, undisputed lords of finance who seem to exist in a gilt world that consists solely of London W1, the Upper East Side of Manhattan, and Greenwich, Connecticut.
But... all is not well in the ivory tower. The "Masters of the Universe" just might be an endangered species.
The financial media has been pumping out stories about struggling funds, disgraced managers, and fleeing investors, all quoting high-profile critics of hedge funds. Even the old Occupy Wall Street gang, jarred by the media from their long nap, is back with a new movement: "Hedge Clippers."
That's not just noise. There's a good reason for the growing widespread discontent with the antics of Wall Street's legendary "hedgies." Investor patience is running out.
But luckily for us, the hedge funds' fall from heaven is likely to be a godsend to independent investors.
Stocks rallied for the fifth consecutive week, erasing the losses suffered by the Dow Jones Industrial Average and S&P 500 to start the year. Fears of recession have receded and investors are now fretting that they may miss out on the next big thing if they don't dive back into the markets.
They should be careful what they wish for.
While it may be gratifying that the market didn't fall completely out of bed in the first quarter, there is still ample reason to believe that we are in a bear market and that recent gains are going to reverse sooner rather than later. One reason stocks rallied last week was that the Federal Reserve once again refused to take an opportunity, when market conditions were relatively stable, to raise interest rates. That leaves only investors to worry about when it might actually decide to do its job.
A look at the Carl Icahn holdings shows that, like a lot of other top activist investors, he likes name-brand stocks.
That means the odds are good that a stock you own are among the Carl Icahn holdings.
No company is immune from activist investors. That point was hammered home anew when Nelson Peltz announced Monday he'd bought $2.5 billion of General Electric (NYSE: GE) stock, making him a top 10 shareholder.
Every year, more household names are targeted, including many widely held stocks.
Some of the largest hedge funds show robust interest in tech, biotech and energy.
Shares of a top pick at one large hedge fund are up a meteoric 94.51% year to date.
You don't have to invest in the top hedge funds to get the benefit of their stock-picking savvy.
By law, hedge funds must disclose their activity quarterly in 13-F filings. That gives retail investors a chance to pore over the holdings of the top hedge funds for ideas.
Hedge fund managers load up on their best ideas - typically their top five holdings.
Hedge fund managers could destroy the housing market all over again. How do we know?
We've got every step of their secret plan laid out: which houses they're going to invest in, how they'll get their leverage, the list goes on.
Most people who are just "in the market" don't understand high-frequency trading (HFT) and dark pools.
My knowledge of HFT and dark pools dates back to the late 1990s, when I was trying to figure out how to get better executions on the large trades my hedge fund was generating. I consider myself a bit of an expert.
When I first got into the financial industry some two decades ago, the hottest career was in investment banking, the home of the financial "Masters of the Universe."
Hedge funds in particular were all the rage.
A good gig at a company like Goldman Sachs was the place to be, so I joined Goldman in their hedge fund group to learn the business from some of the best and brightest minds.
Working for a hedge fund quickly became Wall Street's glamor job, the new address for the Masters of the Universe.
Then, after the financial crisis hit and many hedge funds took their licks, the smartest minds and smartest money moved elsewhere -- and unlike investment banking, this isn't off limits to you, the retail investor.
Let's take a look at each one...
Steven A. Cohen's SAC Capital Advisors was one of the biggest, most powerful and profitable hedge funds on Wall Street. Cohen himself is a legendary figure, replete with odd, personal eccentricities that are the hallmark of the truly brilliant.
Famous for spending hours as a younger man watching the tape roll by, and for keeping his Stamford, CT, trading floor at a steady 68 degrees, Steve Cohen made billions for his clients - and himself.
Now the sharks are circling, the dominos are falling - nearly any hackneyed metaphor a writer could think of to evoke a doomstruck sentiment applies.
The SEC and Manhattan U.S. Attorney Preet Bharara have pursued Cohen and SAC Capital with a rare, almost indecent zeal. The charge is insider trading, allegations which Cohen vehemently denies, but which the SEC is pursuing.
Setting aside the $2.13 trillion under management, there is a certain mystique attached to hedge funds and the people, like George Soros, Carl Icahn, and John Paulson, who manage them.
At one time, hedge fund managers were counted among the "Masters of the Universe." Most of the "rich lists" include no small portion of these types.
But all of these big money managers ultimately live or die on performance.
If their fund takes a dive, the manager might not even draw a paycheck. Meanwhile, the wildly successful managers are compensated far and above what the average Wall Street or London über-banker receives.
But this year, the hedge funds have collectively lagged behind the S&P 500 by about 10% according to Goldman Sachs. Analysts there credit this underwhelming performance to overly bear-ish fund managers who like to short stocks like Johnson & Johnson (NYSE:JNJ), only to see the stocks head the other way.
Part of the allure of the hedge fund world is that they are usually open only to "accredited investors," certain high net worth individuals who meet the criteria, laid out in SEC Regulation D, rules 505 and 506, for investing in hedge funds [emphasis added].
Here are just a few of the criteria:
- a bank, insurance company, registered investment company, business development company, or small business investment company;
- a director, executive officer, or general partner of the company selling the securities;
- a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;
- a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
- a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
A Poor Man's Hedge Fund
As for the rest of us, who may not be "accredited investors?" We're on our own-but not completely.
There are certain ways to taste the rarified air of the hedge fund crowd.
There is an ETF, the Global X Guru Holdings Index ETF (NYSEArca:GURU). Global X's methodology involves scouring the numerous 13F forms that fund managers are required to file. The fund searches for the best performing holdings among the hedge funds - the managers' top picks - with the least turnover, and takes you along for the ride. It's been called the "poor man's hedge fund."
GURU has been around a little less than a year, and has beaten the S&P 500 by a respectable 18 percent.
It's not bad, but their track record is thin on time and the truth is there are ways to do even better...