Let's Check the Scoreboard

The smartest guys in the room have gotten together and tallied the results for October 2010. From the folks at Hedged Fund Net [HFN]: October and YTD 2010 Benchmark Performance:  Ranked by Total Performance.

So, what do these figures mean and how should you interpret them?

These figures are the equal weighted performance averages of all hedge funds reporting for that group. So, a +5.00% for all of 2010 means that 50% of all hedge funds in that group are above this mark and 50% are below it.

If you have money invested anywhere and in anything, the following rankings will give you a good idea where you should be. For example, let’s say you have some stocks invested in companies in Brazil. Accordingly, you should have returned +2.51 % in October and for the year you should be up 10.64%. If your stocks are up more than this, then you have beaten your benchmark and are considered a superior money manager [or investor]. Conversely, if your performance consistently lags the appropriate Index Benchmark, maybe you aren’t as good a trader as you think you are.

Hedge funds [all sizes] all over the world use these benchmarks to judge performance. Investors [or more importantly, potential investors] seeking superior returns and good managers use these benchmarks as well.

I have bold faced the Forex Strategies section.

My PAMM [TrafficCap WealthBuilder], although not officially considered a “hedge fund”, operates basically the same way and should be judged accordingly [Foreign Exchange Stratagies].

Emerging Market Benchmarks:
HFN India Index:                                   +1.46% in October, +17.54% in 2010
HFN Emerging Markets Index:               +2.72% in October, +12.94% in 2010
HFN Russia Index:                                 +2.43% in October, +11.28% in 2010
HFN MENA Index:                               +2.75% in October, +11.18% in 2010
Emerging Market Equity:                        +2.59% in October, +11.00% in 2010
HFN Brazil Index:                                  +2.51% in October, +10.64% in 2010
HFN Latin America Index:                     +2.47% in October, +10.16% in 2010
Emerging Market Debt:                          +0.68% in October, +7.83% in 2010
HFN China Index:                                  +3.45% in October, +5.59% in 2010


Broad and Developed Market Benchmarks:

HFN North America Index:                    +2.50% in October, +8.30% in 2010
HFN U.S. Index:                                    +2.42% in October, +7.98% in 2010
HFN Australia Index:                              +4.78% in October, +6.92% in 2010
HFN Asia Index:                                    +1.54% in October, +5.48% in 2010
HFN Europe Index:                              +1.81% in October, +5.06% in 2010
HFN Japan Index:                                -0.35% in October,  +0.14% in 2010 

Fixed Income (FI) Strategies

HFN Mortgages Index:                         +0.09% in October, +17.06% in 2010
Corporate Bond Strategies:                   +2.07% in October, +11.72% in 2010
HFN Distressed Index:                          +2.35% in October, +11.56% in 2010
All Fixed Income Strategies:                  +0.95% in October, +9.84% in 2010
HFN Fixed Income Arbitrage Index:     +0.39% in October, +9.31% in 2010
Government Bond Strategies:                +0.44% in October, +6.02% in 2010 

Equity (EQ) Strategies

HFN Technology Sector Index:             +4.37% in October, +21.97% in 2010
HFN Energy Sector Index:                    +3.22% in October, +10.28% in 2010
Natural Resource Equity Strategies:       +3.49% in October, +9.99% in 2010
All Equity Focused Strategies:               +2.27% in October, +6.63% in 2010
HFN Long/Short Equity Index:             +2.18% in October, +5.76% in 2010
HFN Healthcare Sector Index:             +0.66% in October, +5.06% in 2010
HFN Market Neutral EQ Index:           +1.13% in October,  +3.01% in 2010
Financials Equity Strategies:                  +0.87% in October, +1.53% in 2010
Real Estate Equity Strategies:                +0.55% in October, +0.88% in 2010
HFN Short Bias Index:                         -1.65% in October, -9.62% in 2010 

Commodity and Foreign Exchange (FX) Related Strategies

Commodity (Non-FX) Strategies:         +3.91% in October, +8.43% in 2010
HFN CTA/Managed Futures Index:     +3.17% in October, +6.10% in 2010
Foreign Exchange Strategies +0.34% in October, +4.93% in 2010
Financial Futures Strategies:                  +1.94% in October, -1.60% in 2010

So, take all the hedge funds that trade Forex; add up the total performance for all of them in 2010 and you get an average [50% above, 50% below] of 4.93%. Of course, hitting these Benchmarks isn’t as easy as it seems. Next time somebody tells you they make 100% a day, tell them to call big money and get a high-paying job.

So, why does it seem these returns are a bit low when compared to the monster returns available in the market if you are right?

It’s because you have to manage risk properly, and the vast majority of money managers [or investors] don’t do a very good job of this. Get stupid, and 20% or 30% losses can hit you before you know it. After that, you have to climb back and it is difficult and may take time. So while +4.93% for 10 months of trading seems paltry, it looks a hell of a lot better than being down -20% for the same period because you had a 35% hit back in March.

-vegas