Tuesday, January 10, 2012

Herd mentality

2011 was definitelly a bad year for many hedge funds. The Paulson Advantage Plus fund managed by John Paulson who had made a killing during the recent sub prime crisis, lost more than 50% this year.

The Polish "near hedge funds", such as Investor FIZ and Opera FIZ didn't fare much better. But the worst part is their performance this year was highly correlated with the market :(

Chart: Investor FIZ and Opera 3gr vs WIG20; source: stooq.com

Seems one of the better asset management companies in the previous years - IDMSA - unfortunately also employed similar strategy:

Chart: Investor FIZ, Opera FIZ and IDMSA ZZP portfolio vs WIG20

Decoupling was demonstrated by small funds like Opera Alfa-Plus and Gandalf SFIO, but that allowed only for capital preservation instead of accumulation. Opera Alfa-Plus finished the year just 1.24% higher, while Gandalf returned 3.75% (January 4th, 2010 - January 3rd, 2011).

Meanwhile quantitative SuperFund lost -20.2% (SuperFund A SFIO PLN) to conclude its six years of presence on the Polish market more than 22% under the water...

Hedge fund / non-benchmark funds were advertised as market neutral, able to withstand market turbulence. Unfortunately it seems most of them demonstrate unhealthy herd mentality.

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