Dec 5, 2019

There may only be huge hedge funds left soon

Illustration: Rebecca Zisser/Axios

Bad news has continued for the hedge fund industry this year. Overall hedge fund returns have continued to trail both the S&P 500 and a mix of 50% global stocks and 50% global bonds by a wide margin.

What's happening: There are too many hedge funds, and too many of them are using simple hedging and shorting strategies that don't work, Dev Kantesaria, founder and portfolio manager of Valley Forge Capital Management, argues. And that may be changing soon.

What we're hearing: "Hedge funds have a troubled future," Kantesaria tells Axios in an email. "The idea of controlling risk through financial engineering such as hedging and shorting is a broken model."

  • That was especially clear during the fourth quarter of 2018 when hedge funds broadly failed to deliver outperformance during the stock market's downturn, he says.

What's next: Kantesaria isn't calling for a full-on wipe out of the industry, but does expect new managers will increasingly be crowded out as dollars flow only to the largest hedge funds, or "those with $1 billion or more in assets, despite mediocre performance over the last decade," he says.

  • "There is a natural tendency for allocators to invest with the larger, well-known names even though they may represent less compelling stories than their smaller peers."
  • "Emerging managers are struggling to capture allocators’ attention in the crowded marketplace. Starting a hedge fund today as an unknown investor is a very difficult proposition."

Go deeper:

Go deeper

Traders keep selling stocks and stuffing cash into savings accounts

Data: Investment Company Institute; Chart: Andrew Witherspoon/Axios

The return of bullish sentiment that has driven the stock market to fresh all-time highs hasn't dented the safe-haven appeal of money market funds, which are akin to savings accounts or holding cash.

Why it matters: In fact, data shows investors are still selling equities on an overall basis and moving that money into money market funds.

Go deeperArrowDec 6, 2019

Asset managers urge caution in 2020

Illustration: Eniola Odetunde/Axios

Investors can expect higher stock prices but also a lot of potential potholes in 2020, according to the investment forecasts of major asset managers.

What they're saying: "[I]n 2020 the margin for error — and opportunity — will likely be as small as it’s been in a very long time," top strategists at State Street Global Advisors wrote in their 2020 outlook.

Go deeperArrowDec 12, 2019

A possible explanation for 2019's equity outflows

Data: Investment Company Institute; Note: Nov. 2019 and Dec. 2019 data are estimates; Chart: Axios Visuals

The historic outflow from equity funds this year likely has a lot to do with the aging demographics of the U.S., analysts at the Investment Company Institute say.

What it means: Shelly Antoniewicz, ICI's senior director of industry and financial analysis, says that the record flows out of U.S. and global equity funds and into bond and money market funds largely reflect older Americans' desire for safety.

Go deeperArrowDec 12, 2019