With the average hedge fund failing to beat the U.S. stock market for four years in a row, the reputation of Wall Street's Masters of the Universe is taking a beating of late.
According to London's Financial Times, a simple portfolio of 60% U.S. equities and 40% bonds generated the same 7.3% return that an average hedge fund did over the past decade.
Adding fuel to the fire was last week's report that the top recommendations of the hedge fund world's leading lights at the annual Ira Sohn hedge fund conference in New York failed to beat the gains in the S&P 500 over the past 12 months.
Sure, there were some winners among last year's picks. Glenview's Larry Robbins pick Tenet Healthcare Corp. (THC) ended the year up 140%. Nevertheless, the average return on the top recommendations added up to less than the S&P's average return of 22%.
That, of course, didn't keep this year's Masters of the Universe from making big predictions for the coming year. Stan Druckenmiller is betting on Google (GOOG) and against the Australian dollar (AUD). China Bear Jim Chanos recommends shorting Seagate Technology Public Limited Company (STX). Greenlight's David Einhorn is betting bet on Oil States International Inc. (OIS). Jeff Grundlach is shorting Chipotle Mexican Grill, Inc. (CMG), dismissing "a gourmet burrito" as an oxymoron.
So, have the giants of the hedge fund world lost their touch?
Certainly, the hedge fund world has become more competitive.
I have more investment information at my finger tips on my new HTC One (sorry, Apple, I couldn't wait any longer...) than George Soros ever did in his prime.
So, it's no surprise that it is harder to eke out market beating returns, consistently.
That said, compiling a virtual track record of hedge fund managers based on last year's recommendations as if they were "buy-and-hold" investments completely makes for little more than an entertaining news story.
And here's why...