The majority of U.S. hedge funds failed to beat the 15% return of the benchmark S&P 500 index in this year’s first half.
According to data firm HFR, which provides information on hedge funds and their performance, American-based hedge fund managers returned just 5% to their clients in the first half of 2024.
The S&P 500 index, by comparison, recorded its 12th best start to a year and the best start to a presidential election year in history between January and June.
The underperformance of hedge funds comes despite their promises of big gains, heavily promoted stock pickers, and complicated trading strategies.
Hedge funds also charge high fees for their promises of superior returns. The typical hedge fund charges a 2% management fee, plus a performance fee of 20% of the fund’s profits.
Yet Ken Griffin’s Citadel hedge fund returned 8.1% in the first half of the year, and Bill Ackman’s Pershing Square recorded a 5.7% gain through June 30.
David Einhorn’s Greenlight Capital posted a 4.5% return in the first half. Dan Loeb’s hedge fund Third Point posted an 11.6% increase.
The underperformance of the major hedge funds can be explained by a lack of faith in technology stocks, particularly those associated with artificial intelligence (A.I.).
Investment bank Goldman Sachs (GS) reports that, as mega-cap tech stocks soared in this year’s first half, hedge funds were selling them and moving capital into financial stocks and commodities.
