What's going on?

Hedge funds showed off their best stock-picking returns of the decade in 2019, according to new data � but they still didn�t match up to the overall stock market.

What does this mean?

�Equity long-short funds� � those that simultaneously buy stocks they expect to go up and short stocks they think will go down � returned 15% last year. That was their best return since 2010, but it still fell well short of the overall market�s 31% gain (tweet this).


There are a couple of reasons why. For one, hedge funds charge their clients hefty fees that eat away at their returns. For another, they approached last year�s stock market rally with caution after having been stung by a stock market plunge at the end of 2018. Many increased their bets that the stock market would fall in 2019 � and in doing so, missed out on some of the gains to be had. And even though they reduced those bets significantly toward the end of the year, it proved to be a case of too little, too late.

Why should I care?

For you personally: Boring is sexy.

While hedge funds are often glorified among the investment community, they’re not necessarily the best place to stash your cash. That�s especially true when most assets are hitting record highs, since it’s typically harder for hedge funds to outperform the market in that environment. Finimizers, then, might prefer the low-octane option of exchange-traded funds (ETFs) that track the stock market as a whole. Not only are they noticeably cheaper, they would�ve netted you a higher return last year too.

Zooming out: Ray? Ray� Skywalker?

Superstar investor Ray Dalio�s hedge fund � the largest in the world � saw one of its flagship funds post its first annual loss since the start of the millennium in 2019. Cheer up, Ray: the fund only lost 0.5%, and even that was only the fourth time the fund has lost money in its almost 30-year history.