MW Simple 60/40 portfolio would've easily beaten hedge-fund returns last year
By Steve Goldstein
Barclays estimates returns of between 10% and 11% for hedge-fund investors
A simple 60/40 portfolio model would've easily beaten the returns that hedge-fund investors enjoyed, according to an estimate of their performance.
Barclays estimated the weighted average returns of hedge fund portfolios by investor type, and they ranged from 10% to 11% for users including pension funds, family offices and private banks.
That's in line with other estimates - Hedge Fund Research's weighted composite index rose 10% last year.
A simple 60% stocks/40% bonds model using the Vanguard total stock market fund VTI and the Vanguard total bond market fund BND would've returned just under 15% in 2024, according to the Lazy Portfolio ETF site.
Even over 5 years - which includes 2022 when both stocks and bonds tumbled in value - the 60/40 strategy sees an average gain of 8%. Over five years, including 2022 when hedge funds lost just 4%, the average return for hedge funds is just over 7%.
"The fact that a traditional 60/40 portfolio outperformed the average hedge fund in 2024 highlights an ongoing challenge for the industry: justifying its cost," said Bruno Schneller, managing partner at Erlen Capital Management, a Swiss asset manager.
"Hedge funds position themselves as vehicles offering diversification, downside protection, and alpha generation, but this performance suggests many are struggling to consistently deliver on those promises, particularly in less volatile environments," he said.
Investors, he said, need to weigh the potential benefits of hedge funds - such as specialized strategies or uncorrelated returns - with simpler and more cost-effective alternatives.
-Steve Goldstein
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January 15, 2025 06:29 ET (11:29 GMT)
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