Retail Investors Rejoice: Even ETFs Beat Hedge Funds in 2009
%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%True, over long periods of time hedge funds have crushed the market. From 1987 to 2008 the Hennessee Hedge Fund Index gained nearly 1,040% versus 273% for the S&P 500, but looking at some 2009 benchmarks? Well, it's not clear what hedge fund investors were paying for.
It certainly wasn't outperformance. The Hennessee International Index advanced 21.4% for the year, according to Hennessee Group, but then the MSCI EAFE (Europe, Australasia and Far East) index gained 27.8%. Investors could have placed that bet by buying the iShares MSCI EAFE ETF (EFA) with its 0.35% expense ratio.
Or take the Hennessee Emerging Markets Index, which returned 39.1% last year. That's just super, except that the MSCI Emerging Markets Index rallied 74.5% -- and the related iShares MSCI Emerging Markets ETF (EEM) charges just 0.72% in expenses.
Unless you feel bad about missing opportunities in convertible arbitrage (up nearly 40% last year) or distressed debt (up more than 43%), you were fortunate to be an index investor in 2009. Hedge fund managers charge enormous fees because they're supposed to serve up excess return, or alpha -- not Alpo.