No, CNBC, hedge funds didn’t just beat the S&P 500 for the first time in a decade

Saw this clickbait today…

I’ll save you a click: The article says that a weighted composite average of hedge funds posted a -4.07% return in 2018. That’s 31 basis points better than the S&P 500 with dividends, which returns -4.38%. It’s the first time since 2008 that the hedge fund index beat the S&P 500. Hence the headline.

But wait… That doesn’t mean investors who own the hedge fund index, if that is even possible, would have come out ahead of investors in an S&P 500 index fund. To figure that out, you have to know the expenses. And while we don’t know the exact pound of flesh each of these hedgies extract from their investors, I’m willing to go out on a limb and say the total is far higher than the 0.04% expense ratio that the Vanguard S&P 500 Index carries. I’d even go so far to bet that the difference is more than 31 basis points. If so, the hedge funds might have won, but the hedge fund investors still lost.

But wait, it’s actually worse for the hedge funds than it appears. Investing isn’t just about one random 365 day period. It’s about a lifetime.

Using the handy 11-year graphic comparing returns tweeted by CNBC’s Leslie Picker…

over the last decade plus one year — so even counting the last two years hedge funds actually won — the S&P 500 index has outperformed the hedge funds by a combined 66.24%! So congrats, hedge fund investors. Even if fees are included in the index and you are 0.31% richer than the alternative this year, you are still down HUGE over the last decade.

The best financial advice to come out of this is one simple point: Don’t base your asset allocation solely on what you hear, or read, on CNBC.

Red Top Mountain

Beautiful 70 degree January day in Georgia. Great opportunity to get out. This is a lovely 5.5 mile hike around Red Top Mountain looking down at Allatoona Lake and the Etowah River. Highly enjoyable, though we weren’t the only ones with the idea so the trail (and the car park) were rather crowded.

If your imagination is good enough, you could almost talk yourself into believing this rocky shoreline was the wonderful Maine coast and not north Georgia. Of course this was also a lot closer.

 

Little Mulberry Park, Dacula, Ga.

Given how annoying Atlanta traffic can be, I’m very happy to live close-in. But one thing I am very envious of when it comes to the outer suburbs is Gwinnett County’s excellent network of parks and green space. Little Mulberry is a good example, a beautiful little lake surrounded by a paved trail with plenty of dirt offshoots running in every directions. We caught it a bit too late for Fall leaves, which were likely spectacular only a few days or weeks ago, but was a nice, relaxing few miles on a Fall Sunday.