PERFIN Session3 Articles

3/15/23, 6:33 AM Asset managers warn too much choice is confusing retail investors | Financial Times
Fund management
Asset managers warn too much choice is confusing retail investors
Thousands of new funds launched in the past decade has led to an ‘oversupplied’ market
The asset management industry has rushed to diversify its offerings in response to customer demand © Getty Images
Madison Darbyshire in New York MARCH 13 2023
The number of investment products has proliferated to the point that they are
confusing retail investors, top asset management executives have said in a warning
for the industry.
About 4,300 funds and exchange traded funds alone have been launched in the US
in the past decade, according to Refinitiv, bringing the total to more than 10,000.
Many of these products are available to everyday investors.
The asset management industry rushed to diversify its offerings in response to

customer appetite for low-cost mutual funds and ETFs as well as less traditional
alternative investments such as real estate and private credit. Large-cap growth
funds alone total more than 550, Refinitiv data show.
But top executives offering some of these products say this rapid expansion has
complicated investing.
“On one hand [more choice] is quite good, but at the same time . . . investors have to
evaluate more options and alternatives,” Robert Sharps, chief executive of T Rowe
Price, which has $1.3tn under management, said in an interview. “This creates
confusion and uncertainty that is in many ways more difficult for the end investor.”
https://www.ft.com/content/da561eeb-838d-48b6-891a-a87c2dc089e0 1/3
3/15/23, 6:33 AM Asset managers warn too much choice is confusing retail investors | Financial Times
Andrew Schlossberg, the incoming chief executive of Invesco, called the industry
“oversupplied with products and capabilities”. Investment groups are under
pressure to consolidate products and limit investor choice, as well as cull products
that are underperforming, said Schlossberg, whose company manages $1.4tn.
“Look at the number of mutual funds and ETFs in the industry, you can just
multiply it on and on,” Schlossberg said. “Do we really need that many?”
One driver of growth in the number of products has been the rise of passive
investing, a strategy of tracking indices generally viewed as simpler than picking
stocks and bonds. The number of passive mutual funds has grown 28 per cent over
the past decade.
While actively managed funds have decreased in number, the number of actively
managed ETFs in the US has almost doubled since February 2021 to close to 1,000
according to Morningstar.
Executives say many product innovations, such as target date retirement funds,
have benefited investors. But so much choice has made business more complex for
both investors and firms trying to manage costs in a competitive sector.
The “democratisation” of complex investment products, which give retail investors

access to strategies traditionally reserved for professionals or institutions, has also
created new challenges. Executives cautioned that few small investors are
sophisticated enough to do the work of an institution in evaluating products.
“Today there’s a reasonable divide between the technical elements we bring in

terms of the products and the average investor and their ability to really leverage
the tools we give to them,” said Yie-Hsin Hung, chief executive of State Street
Global Advisors, the asset management arm of State Street which manages $3.3tn.
State Street, T Rowe and Invesco have themselves expanded product offerings over
the past decade. Streamlining choice, cutting products and standing out in a
crowded field is now important for growth, executives said.
Hung said: “In this environment, the challenge is differentiating, making sure
investors understand . . . what you’re known for.”
Copyright The Financial Times Limited 2023. All rights reserved.
https://www.ft.com/content/da561eeb-838d-48b6-891a-a87c2dc089e0 2/3
8/10/2017 Global ETF assets reach $4tn
Exchange Traded Funds

Global ETF assets reach $4tn
Funds attracted a record $38bn in April as shift from active management accelerates
© Reuters
MAY 10, 2017 by: Robin Wigglesworth, US markets editor
The global exchange traded fund industry smashed past $4tn in assets last
month, as the gingerly improving performance of active asset managers this
year does little to dent investor appetite for cheaper, passive alternatives.
New product launches and investor inflows mean there are now almost 7,000
exchange-traded products managed by 313 providers, and total assets of
$4.002tn at the end of April, according to fresh figures from ETFGI, an
industry data provider.
The relentless flood of money into passive investment vehicles is a blow to the
asset management industry, which has struggled to stem outflows — especially
in areas that are more acutely vulnerable to competition from ETFs, such as
mainstream US equities. As a result, US-listed investment groups have lagged
behind the broader market since the end of the financial crisis, despite rising
markets swelling their assets under management.
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“The active asset management headwinds aren’t abating,” said Ben Johnson,
head of ETF research at Morningstar. “It’s not about performance any more.
It’s structural.”
ETFs gathered a record $37.94bn in April, which was the 39th consecutive
month of net inflows and brought this year’s total so far to $235.2bn —
smashing 2016’s inflows of $81bn at this point of the year.
Of the ETF providers, BlackRock’s iShares was the biggest winner last month,
attracting ETF inflows of $23.9bn, followed by Vanguard’s $10.29bn and
Schwab’s ETFs, which sucked in $2.53bn, according to ETFGI.
Few analysts and asset managers expect the pace to slow. Sanford Bernstein, a
research house owned by the asset manager AllianceBernstein, recently
predicted that by January next year more than 50 per cent of equity assets
under management in the US will be passively managed.
These forecasts come despite improved results for active asset managers versus
passive benchmarks. Signs of a global economic recovery and the new US
administration have pushed stock markets to new highs and triggered big shifts
beneath the surface, nurturing a more fertile environment for traditional,

human stockpickers.
Indeed, 63 per cent of so-called “large-cap” fund managers that invest in blue-
chip US companies in the S&P 500 index managed to surpass their
benchmarks in April, the best beat rate since February 2015 and the 25th best
month of performance in the past 26 years, according to Bank of America
Merrill Lynch.
“We are entering a period where things aligning nicely for active managers,”
Brian Hogan, president of Fidelity’s equity group, told the FT in a recent
interview. “We had a terrific first quarter. There’s more dispersion, less
correlation . . . It’s just a great backdrop for active management.”
Nonetheless, many investors are unimpressed after years of underwhelming

returns.
The shift towards ETFs has been particularly powerful in the US, where assets
stand at almost $2.8tn at the end of March, compared to the $16.9tn US
mutual fund industry, according to the Investment Company Institute. A year
earlier the numbers were $2.1tn and $15.7tn, respectively.
Although the investment industry still largely enjoys healthy profit margins,
mounting pressures have led to predictions of belt-tightening and
consolidation in a sector where mergers and acquisitions have historically been
dogged by controversy and acrimony.
“There’s a lot of change under way, and more to come,” Ron O’Hanley, the
chief executive of State Street Global Advisors, told the FT last month. “We
now live permanently in an environment where clients are far more attuned to
fees than before. And rightly so . . . We get paid by assets under management,
so the tripling of the S&P 500 has done wonders for fee revenue. But at some
point that goes away.”
8/8/2018 ETF market smashes through $5tn barrier after record month | Financial Times
FTfm Exchange traded funds

ETF market smashes through $5tn barrier after record month
Tectonic shift causes profound changes across global asset management industry
As rates rise we will almost certainly see more financial shocks © Getty
Chris Flood FEBRUARY 11, 2018
Investors ploughed more than $100bn in new cash into exchange traded funds in January, a
record monthly inflow that helped drive assets held in ETFs globally above the $5tn mark for
the first time.
The surge in January follows four consecutive years of record breaking inflows into ETFs, a
tectonic shift that is sending shockwaves across the entire asset management industry.
Rising disenchantment with the high fees and inconsistent performance of traditional mutual
funds that try to pick winning stocks is encouraging investors worldwide to move into low-cost
trackers that follow a broad index. This growing shift is forcing some asset managers to pursue
acquisitions to defend their business models and is driving up closures of actively managed
mutual funds.
Net new inflows into exchange traded funds and products reached $105.7bn in January,
according to preliminary data from ETFGI, a London-based consultancy. The final total is
expected to be higher when January data from the Australian ETF market become available.
“The ETF industry has passed the $5tn mark for assets far more quickly than almost anyone
anticipated,” said Deborah Fuhr, co-founder of ETFGI. “But ETFs represent only a small
fraction of invested assets worldwide. We are still only in the early stages of ETF adoption in
many regions and there is huge potential for further ETF growth in fixed income markets
globally.
https://www.ft.com/content/5cf7237e-0cdc-11e8-839d-41ca06376bf2 1/3
“Progress toward the $10tn milestone may also prove faster than currently expected if market
conditions remain favourable.”
BlackRock, the world’s largest asset manager, attracted net inflows of just over $28bn into its
iShares ETF arm in January, up 46 per cent on the same month a year ago.
Pennsylvania-based Vanguard, the world’s second largest asset manager, had a quieter start to
2018 with net ETF inflows of just over $11bn in January, down around 30 per cent on the same
month last year.
The four-year surge in ETF inflows has coincided with an extended rally in the US stock market,
with the benchmark S&P 500 index hitting an all-time high on January 26.
The first US listed ETF, known as SPY, tracks the S&P 500 index.
SPY, which is run by State Street Global Advisors, marked its 25th anniversary in January by
breaking above the $300bn milestone.
That threshold was passed after State Street registered net ETF inflows of just under $30bn in
January, more than 10 times higher than the same month last year.
Market strategists have been paying close attention to ETF and mutual fund flows as a
barometer of the health of the prolonged bull market in US equities, which have traded towards
the top of their historic valuation range.
Increases this year in long-term US interest rates towards 3 per cent have encouraged investors
to pull money out of US Treasuries and high-yield corporate bonds and to rotate into equities.
More than $3bn was withdrawn from high-yield bond ETFs in January alone, while more than
$41bn flowed into ETFs that track North American equities.
Bank of America Merrill Lynch warned at the start of February that its proprietary Bull and Bear
indicator had surged to an extreme level, delivering a clear “sell” signal for equities. BofAML has
warned for months that a correction in US equities was increasingly likely and the Dow Jones
Industrial Average suffered its largest ever one-day points fall on February 5, a day of wild
volatility on Wall Street that was followed by further sharp falls across stock markets worldwide
last week.
Michael Hartnett, chief investment strategist at BofAML, said corporate earnings reports would
act as a crucial determinant as to whether the equity sell off was a temporary correction or the
start of a bear market.
“The best sign that companies do not believe that profits have peaked would be resumption of
strong corporate buybacks in coming weeks,” said Mr Hartnett.
BlackRock said the US stock market slide was “mainly driven by an unwinding of popular trades
betting on low equity volatility”. Although the short-term outlook for equities was highly
uncertain, the correction provided “an opportunity to add risk to portfolios,” said BlackRock.
Mark Haefele, global chief investment officer of UBS Wealth Management, said “while volatility
may persist in the very near term, we remain confident that the [equity] bull market remains
intact.
“We may have moved from being ‘overdue’ for a pullback to approaching ‘overdone’ with this
sell-off.”
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12/6/2019 Assets held in exchange traded funds surge to record $6tn | Financial Times
FTfm Exchange traded funds

Assets held in exchange traded funds surge to record $6tn
Performance of most traditional active managers during the crisis prompted many investors to seek less volatile
strategies
Chris Flood DECEMBER 1 2019
Global assets held by exchange traded funds have climbed to a record $6tn, doubling in size in
less than four years, in a surge turbocharged by the lengthy US stock market bull run.
The sector’s explosive growth has attracted heightened scrutiny by regulators who are
concerned about the influence of ETFs as they spread deeper and wider into financial markets
worldwide.
“Passing the $6tn milestone is a historic moment but we are still in a relatively early stage of the
industry’s development as ETF adoption rates across Europe and Asia are well below those seen
in the US,” said Deborah Fuhr, co-founder of ETFGI, a consultancy.
ETFs, which provide a low-cost way to invest in a basket of assets by tracking an index, were
seen as an insignificant niche before the financial crisis. But the failure of most traditional active
managers to avoid damaging losses during the crisis prompted many investors to seek less
volatile strategies built with ETFs. These financial instruments have gathered more than $3.5tn
in new cash over the past decade.
Inigo Fraser-Jenkins, a senior analyst at the brokerage Bernstein, said the penetration of index-
tracking ETFs into financial markets still has “a lot further to go”.
“Allocation decisions to passive [index funds including ETFs] don’t appear to be slowing at all,”
said Mr Fraser-Jenkins.
Global ETF assets could reach $12tn by the end of 2023, according to BlackRock.
The rise of ETFs has helped BlackRock and Vanguard, the pioneer of index-tracking funds, to
develop into the asset management industry’s two biggest and most influential players.
BlackRock’s iShares ETF arm has attracted at least $125bn in new cash so far this year, pushing
the unit’s assets above the $2tn mark in October. Rapid growth for iShares has propelled
BlackRock’s total assets to a record $7tn.
ETFs inflows have helped Pennsylvania-based Vanguard to retain the title of world’s fastest-
growing fund manager for seven consecutive years. Vanguard’s ETF arm has gathered at least
$88bn in new cash this year, lifting its total assets to $5.9tn.
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12/6/2019 Assets held in exchange traded funds surge to record $6tn | Financial Times
The rivals have led a cut-throat price war on fees

which has sucked in smaller competitors including
ETFs have lowered the cost State Street, Charles Schwab, DWS, Lyxor, UBS and
of investing but there are Amundi. The battle has created unrelenting
unanswered questions pressures on profit margins across the fund
industry and forced greater consolidation.
about their impact on
financial markets After a record year for deals in 2018, more mergers
Inigo Fraser-Jenkins, Bernstein and acquisitions are widely anticipated as smaller
players attempt to reconfigure their business
models to better withstand the competitive
pressures exerted by BlackRock and Vanguard.
ETFs now regularly account for a third of the trading on the US stock market and an even larger
share in periods of high volatility.
Growth in the number of shares held by ETFs has reduced the availability of stocks for trading
for other market participants, according to Bank of America Merrill Lynch.
A recent Goldman Sachs study concluded that ETF trading is influencing the volatility of
underlying stocks. Some academics also believe that ETFs flows are distorting the US stock
market’s critical price discovery function, which could lead to the misallocation of capital and
eventual damage to economic growth.
These issues have led to greater scrutiny by regulators who remain concerned that potential
risks associated with ETFs are understated by their managers and not fully appreciated by less
sophisticated investors.
Regulators know that the vast asset purchase programmes introduced by central banks after the
financial crisis have helped drive US stocks to all-time highs and created potentially dangerous
price bubbles in bond markets.
Uncertainty over whether orderly trading might be disrupted by large scale selling by ETFs in a
market correction, leading to a destabilising downward spiral and bigger losses for investors,
remains a troubling unknown in the minds of many regulators.
“ETFs have undoubtedly lowered the cost of investing but there are unanswered questions about
their impact on the functioning of financial markets,” said Mr Fraser-Jenkins.
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9/11/2020 ETF assets reach $7tn milestone | Financial Times
The week’s best ETF articles
ETF Hub Exchange traded funds

ETF assets reach $7tn milestone
Investors have ploughed $428bn in new cash into exchange traded products so far this year
Sentiment towards ETFs has been strengthened this year by the Fed’s decision to use fixed income ETFs to help stabilise the
bond market © Getty Images
Chris Flood SEPTEMBER 9 2020
Global assets held by exchange traded funds have reached $7tn for the first time,
boosted by massive emergency public spending measures that helped drive a
rebound in financial markets.
Governments worldwide have announced $20tn worth of stimulus measures in

response to the coronavirus pandemic, slashing interest rates and expanding bond-
buying programmes to stabilise financial markets.
Aggressive steps by policymakers have encouraged investors to plough $428bn in

new cash into ETFs so far this year, up 57 per cent compared to the same period
last year, according to ETFGI, a London-based consultancy.
Assets held in ETFs (funds and products) reached a record $7tn at the end of
August just before the US stock market reached an all-time high and prior to this
week’s correction in technology stocks.
https://www.ft.com/content/e59346a7-b872-4402-8943-2d9bdc979b08 1/3
“The ETF industry has registered positive investor net inflows for the past 15
months, even during February and March of this year when equity markets were in
retreat as a result of worries about the economic impact from the spread of
coronavirus,” said Deborah Fuhr, founder of ETFGI.
$98.6bn
Sceptics who predicted that the violent
correction in financial markets triggered by
coronavirus would mark an end to the rapid
Net inflows of BlackRock’s iShares
expansion of the ETF industry have been
ETF arm in 2020
proved wrong, Ms Fuhr added.
Sentiment towards ETFs has been

strengthened by the Federal Reserve’s decision this year to use fixed income ETFs
to help stabilise the bond market, an unprecedented vote of confidence from the
US central bank.
ETFs, which provide a low-cost way to invest in a basket of assets by tracking an

index, were regarded as an insignificant niche before the 2007-08 financial crisis.
But the failure of most traditional active managers to avoid brutal losses during the
crisis led many investors to seek less volatile strategies built with ETFs.
ETF providers have attracted $4.3tn in net new cash since the start of 2009, a
tectonic shift that is driving changes across the entire investment industry.
BlackRock and Vanguard have developed into the world’s two largest asset
managers over the past decade by aggressively expanding their ETF units.
BlackRock’s iShares ETF arm has gathered

Inside ETFs net inflows of $98.6bn so far this year.
Pennsylvania-based Vanguard, the fund
industry’s most aggressive price
competitor, is ahead in this year’s race for
investors’ cash after attracting ETF inflows
of just under $115bn.
The FT has teamed up with
Their competitors trail far behind but nine
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Strong buying via ETFs has also helped to

push the price of gold to a record above the
$2,000 an ounce level in August.
Investors have spent $51.2bn buying gold ETFs so far this year, pushing the asset
value of these vehicles to $241bn, according to the World Gold Council, the trade
body representing bullion mining companies.
1/16/2021 Annual inflows drive ETF industry assets to all-time high of $8tn | Financial Times
The latest news on ETFs
ETF Hub Exchange traded funds

Annual inflows drive ETF industry assets to all-time high of $8tn
Investors allocated $762.9bn in new cash to exchange traded funds in 2020
The surge in ETF inflows gathered pace last year after central banks slashed interest rates and provided massive doses of
emergency liquidity © Reuters
Chris Flood JANUARY 14 2021
Interested in ETFs?
Visit our ETF Hub for investor news and education, market updates and analysis
and easy-to-use tools to help you select the right ETFs.
New business for managers of exchange traded funds jumped by more than a third
during 2020 with record net investor inflows pushing global ETF assets to an all-
time high of $8tn in a tectonic shift that is ratcheting up competitive pressures
across the investment industry globally.
Investors worldwide allocated $762.9bn into ETFs (funds and products) last year,
up 34 per cent on the net inflows of $569bn registered in 2019, according to a
preliminary data from ETFGI, a London-based consultancy.
https://www.ft.com/content/5f7acd74-8990-4c8a-94c6-c8dae0c2b037 1/3
Last year’s haul was also 16.6 per cent higher than the previous annual inflow
record of $654bn set in 2017, a remarkable performance given the violent
correction that battered stock markets in the first quarter as the coronavirus
pandemic gathered pace across the world.
“No one could possibly have predicted back in March during the stock market
correction that the ETF industry would end the year with record investor inflows
and global ETF assets at a record $8tn. It is truly astonishing,” said Deborah Fuhr,
the founder of ETFGI.
The surge in ETF inflows gathered pace last year after central banks slashed
interest rates and provided massive doses of emergency liquidity to stabilise equity
markets that had fallen sharply after lockdown measures plunged leading
economies into recession.
Central banks’ aggressive monetary response also helped gold ETFs to collect
record inflows of $44.9bn, pushing the price of the precious metal, which is widely
seen as a haven in periods of turmoil, to above the $2,000 an ounce mark in
August.
Investors have ploughed more than $4.6tn in new cash into ETFs since the global
financial crisis amid mounting discontent with the disappointing performance and
high fees of traditional active managers that try to pick winning stocks.
This shift has helped the ETF industry’s two leading players, BlackRock and
Vanguard, to become the world’s largest asset management companies.
Pennsylvania-based Vanguard attracted ETF inflows of $206.6bn in 2020, a jump

of 73.2 per cent on the $119.3bn gathered over the previous year. About $43bn
of Vanguard’s ETF inflows last year came via an arrangement that allows clients to
move an existing mutual fund holding into an ETF.
“ETFs have become the default vehicle for index-based investment strategies,” said
Tim Buckley, the chief executive of Vanguard.
BlackRock’s iShares ETF unit registered inflows of $190.2bn last year, up 4.5 per
cent on its 2019 total of $182bn.
“Record ETF inflows are a culmination of decades of innovation that have made
investing easier, more affordable and more efficient for more people than ever,”
said Salim Ramji, global head of iShares at BlackRock.
He pointed out that sustainable ETFs had gathered inflows of $85bn in 2020
compared with $28bn the previous year, reflecting the strong growth in investors
interest in funds that employ robust environmental, social and governance
standards.
“2020 can be heralded as the landmark year for sustainable ETF flows,” said Mr
Ramji.
BlackRock and Vanguard together took more than half of the new business
registered last year by the ETF industry, heaping pressure on rival managers. Their
growing dominance has fuelled speculation that other players including Invesco,
State Street, UBS and JPMorgan will have to pursue large acquisitions if they want
to compete effectively against BlackRock and Vanguard.
State Street’s ETF unit attracted inflows of $40.2bn last year, up from $31.7bn in
2019. This represents another disappointing showing given that State Street runs
SPY, the world’s largest equity ETF, as well as GLD, the biggest gold ETF.
Invesco’s ETF arm drew inflows of $25.5bn in 2020, an increase of 23.2 per cent
on the $20.7bn registered the previous year.
The ETF unit at UBS suffered a disappointing year with inflows dropping 70 per
cent to $4.8bn.
JPMorgan, a late entrant to the ETF industry, saw ETF inflows increase 17.5 per
cent to $14.1bn last year while DWS, the asset manager owned by Deutsche Bank,
gathered ETF inflows of $18.4bn, a jump of 53.3 per cent on the $12bn registered
in 2019, according to ETFGI.
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8/13/2021 Global ETF Assets Hit $9 Trillion - WSJ
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https://www.wsj.com/articles/global-etf-assets-hit-9-trillion-11628769548
ETFS
Global ETF Assets Hit $9 Trillion

Net flows so far this year have nearly eclipsed the $736.5 billion investors had moved into ETFs
globally in all of 2020
Vanguard Group’s ETFs pulled in nearly $224 billion through the first seven months of this year.
PHOTO: RYAN COLLERD FOR THE WALL STREET JOURNAL
By Michael Wursthorn
Aug. 12, 2021 7:59 am ET
Investors poured $705 billion into exchange-traded funds through the first seven months
of the year, pushing 2021’s world-wide tally to a record $9.1 trillion, according to data
from Morningstar Inc.
Net flows so far this year have nearly eclipsed the $736.5 billion investors had moved into
ETFs globally in all of 2020. Most of the cash has gone into cheap, index-tracking funds,
with large-cap and short-term bond ETFs, as well as products offering inflation
protection, attracting significant investor interest, according to the data.
https://www.wsj.com/articles/global-etf-assets-hit-9-trillion-11628769548?mod=markets_lead_pos6 1/5
Trillions
ETFs world-wide hit more than $9 trillion in
assets last month.
Total net assets for global ETFs, annually
$10 trillion
0
2009 '10 '15 '20
Note: Data for 2021 through July

Source: Morningstar
U.S. ETFs accounted for a record $519 billion of the total, sending assets in U.S. funds to
about $6.6 trillion. ETFs now hold more money than index-tracking mutual funds, which
had about $8.8 trillion in assets as of June, though mutual funds overall still command
more money, with about $40.7 trillion in assets.
ETFs are baskets of securities that are as easy to trade as a stock. They lack the
investment minimums found in many mutual funds, are generally more tax efficient and
carry lower fees. The success of ETFs was far from guaranteed after the first one launched
in 1993. But enthusiasm for low-cost investments has led to an explosion in ETF assets
over the past 10 years.
“ETFs are probably the greatest success story in financial services over the last two
decades,” said Anaelle Ubaldino, head of ETF research and investment advisory at data
firm TrackInsight, which also tracked ETFs crossing the $9 trillion mark last month.
Vanguard Group has been the biggest draw this year, with its ETFs pulling in nearly $224
billion through the first seven months of 2021. That is 45% more than all the money
attracted so far in 2021 by BlackRock, BLK 0.16% ▲ the world’s No. 1 ETF manager by assets.
Flow Show
Flows into ETFs around the world this year
have already nearly surpassed 2020's record
windfall.
Net flows into global ETFs, annually
$800 billion
700
600
500
400
300
200
100
0
2009 '10 '15 '20
Note: 2021 data through July

Source: Morningstar
Two broad, inexpensive stock-market funds run by Vanguard garnered the most interest
from investors. Vanguard’s 500 Index Fund and Total Stock Market Index Fund pulled in
$32.3 billion and $23.4 billion so far this year. Of the top 10 funds by inflows in 2021,
Vanguard managed six, while BlackRock’s iShares ETF unit oversaw the other four.
Since asset managers got regulatory approval in 2019 to run stock-picking ETFs that also
shield their daily holdings, Fidelity Investments, T. Rowe Price Group Inc., Putnam
Investments and others have launched actively managed funds. These are similar to some
of their mutual-fund strategies, yet more accessible and usually cheaper for individual
investors. Others such as Guinness Atkinson Funds and Dimensional Fund Advisors have
opted to convert some mutual funds into ETFs.
JPMorgan Chase & Co. has launched some actively managed ETFs, including its Equity
Premium Income fund last year, which has pulled in $2.4 billion from investors so far in
2021. The banking giant said Wednesday that it plans to convert four active mutual funds
managing some $10 billion in assets into ETFs in 2022 pending approval from their
boards.
Active ETFs still represent a small but growing segment of the overall ETF market.
Nonindexed ETFs, including those that actively pick stocks, carried $358 billion in assets
as of July, about 4% of the overall ETF market, according to Morningstar’s data. That was
up from $193 billion a year ago.
ETFs come with some risks, however. Narrow, thematic funds can concentrate billions of
dollars in assets in a small roster of companies, making them potentially susceptible to a
liquidity crunch in volatile markets, some analysts say. ETFs that track indexes,
meanwhile, have the potential to fall out of step with benchmarks, which is known as
tracking error.
ETF Leaderboard
Top 10 ETF firms, by 2021 net flows
$0 billion $100 $200
Vanguard
iShares
State Street
Invesco
Charles
Schwab
JPMorgan
Xtrackers
First Trust
Ark Financial
Global X
Management
Note: Data through July

Source: Morningstar
With stocks hitting records, some expect more growth ahead. In the U.S. alone, Matt
Bartolini, head of SPDR Americas Research at State Street Global Advisors, predicts
inflows for all of 2021 could reach nearly $800 billion—more than what has flowed into
U.S. mutual funds in the past nine years combined.
“With such dazzling flow totals in a short period of time, it begs the question of how high
flows could get in 2021,” said Mr. Bartolini. “Particularly if ETFs can make it into the four
commas club.”
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
Appeared in the August 13, 2021, print edition as 'ETF Assets Swell to $9 Trillion.'
7/21/2015 For the First Time, There’s More Money in ETFs Than Hedge Funds WSJ
This copy is for your personal, noncommercial use only. To order presentationready copies for distribution to your colleagues, clients or customers visit
http://www.djreprints.com.
http://www.wsj.com/articles/forthefirsttimetheresmoremoneyinetfsthanhedgefunds1437430309
MǺŘĶĚȚȘ | ỲǾŲŘ MǾŇĚỲ | ẄĚǺĿȚĦ ǺĐVİȘĚŘ
Fǿř ťħě Fįřșť Ťįmě, Ťħěřě’ș Mǿřě
Mǿňěỳ įň ĚŤFș Ťħǻň Ħěđģě Fųňđș
Ẅħįŀě bǿțħ ǻřě țǻķįňģ įň ňěẅ čǻșħ, ěxčħǻňģě-țřǻđěđ fųňđș ẅǿřŀđ-ẅįđě ħǻđ mǿřě įň ǻșșěțș
ǻș ǿf mįđỳěǻř
Strong stockmarket returns in recent years have boosted the assets in ETFs that track stock indexes.Here, traders at the
New York Stock Exchange last week. PHOTO: MARK LENNIHAN/ASSOCIATED PRESS
Bỳ ĐǺİȘỲ MǺXĚỲ
Jųŀỳ 20, 2015 6:11 p.m. ĚȚ
Ěxčħǻňģě-țřǻđěđ fųňđș mǻỳ bě řěŀǻțįvě ųpșțǻřțș čǿmpǻřěđ ẅįțħ ħěđģě fųňđș, bųț
http://www.wsj.com/articles/forthefirsttimetheresmoremoneyinetfsthanhedgefunds1437430309 1/3
fįňǻňčįǻŀ ǻđvįșěřș ǻňđ ǿțħěř įňvěșțǿřș ħǻvě fǿř țħě fįřșț țįmě ěňțřųșțěđ țħěm ẅįțħ mǿřě
čǻșħ.
Ǻșșěțș įň țħě 5,823 ĚȚFș ǻňđ ǿțħěř ěxčħǻňģě-țřǻđěđ přǿđųčțș ŀįșțěđ ģŀǿbǻŀŀỳ țǿțǻŀěđ
$2.971 țřįŀŀįǿň ǻț mįđỳěǻř, ǻččǿřđįňģ țǿ ĚȚFĢİ ĿĿP, ǻ Ŀǿňđǿň-bǻșěđ ěxčħǻňģě-țřǻđěđ-
přǿđųčț čǿňșųŀțǻňčỳ.
Měǻňẅħįŀě, ǻșșěțș įň ħěđģě fųňđș ẅǿřŀđ-ẅįđě țǿțǻŀěđ $2.969 țřįŀŀįǿň, ǻččǿřđįňģ țǿ ǻ

řěpǿřț řěŀěǻșěđ Mǿňđǻỳ bỳ Ħěđģě Fųňđ Řěșěǻřčħ İňč. įň Čħįčǻģǿ.
Ǻș ǿf ĦFŘ’ș přěvįǿųș qųǻřțěřŀỳ řěpǿřț, ħěđģě fųňđș ǻřǿųňđ țħě ẅǿřŀđ ħǻđ $2.939 țřįŀŀįǿň
įň ǻșșěțș, ẅħįŀě ĚȚPș ħǻđ $2.926 țřįŀŀįǿň ǻș ǿf țħǻț șǻmě Mǻřčħ 31 đǻțě, ǻččǿřđįňģ țǿ
ĚȚFĢİ.
Țħě ĚȚF/ĚȚP įňđųșțřỳ čěŀěbřǻțěđ įțș 25țħ ǻňňįvěřșǻřỳ įň Mǻřčħ, ẅħįŀě țħě ħěđģě-fųňđ
įňđųșțřỳ ħǻș ěxįșțěđ fǿř 66 ỳěǻřș, șǻỳș Đěbǿřǻħ Fųħř, fǿųňđěř ǻňđ mǻňǻģįňģ pǻřțňěř ǿf
ĚȚFĢİ.
Țħě ǻșșěț mįŀěșțǿňě fǿř țħě ĚȚF įňđųșțřỳ įș țěșțǻměňț țǿ țħě přǿđųčțș’ přǿŀįfěřǻțįǿň,
ǻŀǿňģ ẅįțħ ǻțțřįbųțěș įňčŀųđįňģ ŀǿẅ čǿșțș, țřǻňșpǻřěňčỳ ǻňđ řěŀįǻbŀě įňđěx-țřǻčķįňģ
pěřfǿřmǻňčě. ĚȚFș “ǻřě věřỳ đěmǿčřǻțįč, ǻňđ țħěỳ đǿ ẅħǻț țħěỳ șǻỳ țħěỳ’řě ģǿįňģ țǿ đǿ,”
șǻỳș Mș. Fųħř.
Bỳ čǿňțřǻșț, țħě ĚȚF řěșěǻřčħěř șǻỳș ħěđģě fųňđș đǿň’ț ǻŀẅǻỳș đěŀįvěř ẅħǻț įňvěșțǿřș
ħǿpě fǿř.
“Ẅħǻț ħěđģě fųňđș șǻỳ țħěỳ’řě ģǿįňģ țǿ đǿ įș ģįvě ỳǿų běțțěř pěřfǿřmǻňčě,” Mș. Fųħř
șǻỳș. “Ỳǿų’řě pǻỳįňģ ǻ ŀǿț mǿřě mǿňěỳ ǻňđ, ǿfțěň, ỳǿų’řě ňǿț ģěțțįňģ ħįģħ ǻŀpħǻ řěŀǻțįvě
țǿ țħě mǻřķěț.”
Mǻňỳ ħěđģě fųňđș ǻįm țǿ đěŀįvěř pǿșįțįvě řěțųřňș ǿvěř țįmě țħǻț ǻřěň’ț čǿřřěŀǻțěđ ẅįțħ
țħě řěțųřň ǿf șțǿčķ mǻřķěțș. Bųț mǻňỳ įňvěșțǿřș ħǻvě běěň đįșǻppǿįňțěđ ẅįțħ țħě
pěřfǿřmǻňčě ǿf ħěđģě fųňđș ǿvěř țħě pǻșț fěẅ ỳěǻřș, ǻș șǿǻřįňģ șțǿčķ mǻřķěțș ħǻvě ŀįfțěđ
țħě pěřfǿřmǻňčě ǿf mǻňỳ ĚȚFș. Țħěřě ħǻș ǻŀșǿ běěň ǻ țřěňđ țǿẅǻřđ ǿffěřįňģ ħěđģě-
fųňđ-ŀįķě șțřǻțěģįěș ǻț ŀǿẅěř čǿșțș țħřǿųģħ mųțųǻŀ fųňđș ǻňđ ěxčħǻňģě-țřǻđěđ přǿđųčțș.
Țħǻț įșň’ț țǿ șǻỳ țħǻț įňvěșțǿřș ǻřě fŀěěįňģ ħěđģě fųňđș, țħǿųģħ. Țħě ŀǻțěșț ǻșșěț fįģųřě
mǻřķș țħě 11țħ čǿňșěčųțįvě qųǻřțěřŀỳ řěčǿřđ, ǻččǿřđįňģ țǿ ĦFŘ. Ǻňđ ěčǿňǿmįč
đįșŀǿčǻțįǿňș įň Čħįňǻ ǻňđ Ģřěěčě ǻș ẅěŀŀ ǻș ǻň ǻňțįčįpǻțěđ čŀįmb įň Ų.Ș. įňțěřěșț řǻțěș
čǿňțřįbųțěđ țǿ “įňčřěǻșěđ įňvěșțǿř ųňčěřțǻįňțỳ ěňțěřįňģ țħě șěčǿňđ ħǻŀf ǿf țħě ỳěǻř,”
ŀěǻđįňģ įňvěșțǿřș țǿ șěěķ řěțųřňș țħǻț đǿň’ț țřǻčķ mǻjǿř șțǿčķ ǻňđ bǿňđ mǻřķěțș, ĦFŘ
șǻįđ įň ǻ ňěẅș řěŀěǻșě Mǿňđǻỳ.
İň țħě fįřșț ħǻŀf ǿf țħįș ỳěǻř, ħěđģě fųňđș țǿǿķ įň $39.7 bįŀŀįǿň įň ňěț ňěẅ ǻșșěțș ģŀǿbǻŀŀỳ,
ẅħįŀě $152.3 bįŀŀįǿň fŀǿẅěđ įňțǿ ĚȚFș ǻňđ řěŀǻțěđ přǿđųčțș, ǻččǿřđįňģ țǿ ĦFŘ ǻňđ
ĚȚFĢİ.
Ķěňňěțħ Ħěįňż, přěșįđěňț ǿf ĦFŘ, șǻỳș ħě đǿěșň’ț běŀįěvě țħǻț țħěřě įș ǻ řěŀǻțįǿňșħįp
běțẅěěň țħě ǻșșěț fįģųřěș fǿř țħě țẅǿ įňvěșțměňț țỳpěș.
“Ģěňěřǻŀŀỳ șpěǻķįňģ, ỳǿų ħǻvě țǿțǻŀŀỳ đįffěřěňț įňvěșțǿřș įň ħěđģě fųňđș ǻňđ ĚȚFș,” ħě
șǻỳș. “ĚȚFș ǻřě břǿǻđŀỳ ǿpěň țǿ ǻňỳ řěțǻįŀ įňvěșțǿř, ẅħěřěǻș, įň ǿřđěř țǿ įňvěșț įň ħěđģě
fųňđș, ỳǿų ħǻvě țǿ bě ǻ qųǻŀįfįěđ įňvěșțǿř.”
Șǿmě ħěđģě fųňđș ųșě ĚȚFș įň țħěįř pǿřțfǿŀįǿș, Mř. Ħěįňż ǻŀșǿ ňǿțěș. İț įșň’ț șųřpřįșįňģ
țǿ șěě ĚȚF ǻșșěțș șẅěŀŀįňģ běčǻųșě șțǿčķș ħǻvě ħǻđ șțřǿňģ pěřfǿřmǻňčě įň řěčěňț ỳěǻřș,
ħě șǻỳș.
İň țħě Ų.Ș., mǻňỳ fįňǻňčįǻŀ ǻđvįșěřș ǻřě ųșįňģ ĚȚFș țǿ bųįŀđ đįvěřșįfįěđ pǿřțfǿŀįǿș țħǻț
țħěỳ șǻỳ đěŀįvěř “ǻ čħěǻp, bųț ħįģħ-qųǻŀįțỳ, ěxpěřįěňčě,” șǻỳș Jěffřěỳ Ŀěvį, ǻ pǻřțňěř ǻț
čǿňșųŀțǻňčỳ Čǻșěỳ, Qųįřķ & Ǻșșǿčįǻțěș ĿĿČ. ĚȚFș ǻřěň’ț ǻș đǿmįňǻňț ǿųțșįđě țħě Ų.Ș.
Bųț ěvěň șǿ, ňǿň-Ų.Ș. ĚȚF șǻŀěș ǻřě ħįțțįňģ řěčǿřđș, șǻỳș ĚȚFĢİ.
Țħěřě ǻřě bįģ đįffěřěňčěș įň țħě fěěș běțẅěěň ħěđģě fųňđș ǻňđ ĚȚFș. Ħěđģě fųňđș
čųřřěňțŀỳ ǻvěřǻģě ǻ bǻșįč čħǻřģě ǿf 1.5% ǿf țħě ǻșșěțș mǻňǻģěđ, pŀųș 18% ǿf pěřfǿřmǻňčě,
ǻččǿřđįňģ țǿ ĦFŘ. Čħǻřģěș fǿř ĚȚFș ǻvěřǻģě 0.31% ǿf ǻșșěțș, ǻččǿřđįňģ țǿ ĚȚFĢİ.
—Mįķě Fǿșțěř čǿňțřįbųțěđ țǿ țħįș ǻřțįčŀě.
Ẅřįțě țǿ Đǻįșỳ Mǻxěỳ ǻț đǻįșỳ.mǻxěỳ@ẅșj.čǿm
Copyright 2014 Dow Jones & Company, Inc. All Rights Reserved
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8/1/2017 ETFs Now Have $1 Trillion More Than Hedge Funds - WSJ
DOW JONES, A NEWS CORP COMPANY
DJIA ▲ 21963.92 0.33% Nasdaq ▲ 6362.94 0.23% U.S. 10 Yr ▲ 12/32 Yield 2.254% Crude Oil ▼ 48.79
https://www.wsj.com/articles/etfs-now-have-1-trillion-more-than-hedge-funds-1501588800
ETFS
ETFs Now Have $1 Trillion More Than

Hedge Funds
Investment flows show how Wall Street’s cheapest and priciest funds are diverging fast
Market-mimicking funds like ETFs have been helped by fresh market highs. PHOTO: BRYAN R. SMITH/AGENCE FRANCE-
PRESSE/GETTY IMAGES
By Sarah Krouse
Aug. 1, 2017 8:00 a.m. ET
The fortunes of Wall Street’s cheapest and priciest funds are diverging fast.
Exchange-traded funds held $1 trillion more in investor money than hedge funds
globally for the first time ever at the end of June, according to new research from
London consulting firm ETFGI LLP. Assets in ETFs, which trade on exchanges like
stocks, first surpassed the amount of money in hedge funds two years ago and have
continued to swell.
Market-mimicking funds like ETFs have been helped by fresh market highs. The Dow
Jones Industrial Average closed at a record high Monday after a string of strong
corporate results in the U.S. The S&P 500 as well as major German and U.K. stock
indexes are also near record highs. Those gains have prodded investors already losing
https://www.wsj.com/articles/etfs-now-have-1-trillion-more-than-hedge-funds-1501588800 1/3
8/1/2017 ETFs Now Have $1 Trillion More Than Hedge Funds - WSJ
faith in star stock and bond pickers to plow even more money into the ultra low-cost
funds.
So far this year, research firm HFR’s index of

Diverging Fortunes
hedge fund performance returned 3.7%,
Exchange-traded funds globally have
compared with a nearly 10% return for the
gathered assets rapidly in recent years
as hedge fund growth stagnated. S&P 500.
ETFs Hedge funds The divergence in assets is just the latest

$5 trillion evidence to show how individual and large
investors are changing the way they put
4
money to work. Wealth advisers increasingly
3 are shifting client assets into portfolios filled
with ultracheap funds for which they charge a
2
fee. Cost-conscious institutional investors
1 have taken money out of hedge funds and
allocated more to funds that match the
0
performance of broad swaths of the market.
2005 ’10 ’15
Note: Data for 2017 are as of midyear.
Sources: ETFGI (ETFs); HFR (hedge funds)
Price is a major attraction. The asset-
THE WALL STREET JOURNAL weighted average annual cost for exchange-
traded funds globally is 0.27%, according to
ETFGI. Hedge funds traditionally charged investors 2% of assets and another 20% of
profits over a certain threshold. ETFs also come with some tax and trading advantages.
The movement of money has caused a shift in power on Wall Street from professional
investors that promise outsize returns generated by savvy bets to less flashy so-called
passive investing that aims to match the market.
In the first half of this year, ETFs around the world attracted a net $347.7 billion in net
new assets, according to ETFGI. Meanwhile, hedge funds attracted a net $1.2 billion,
according to HFR. Hedge funds still outnumber ETFs by more than 1,000 globally,
despite their slower growth.
BlackRock Inc. and Vanguard Group, the two largest ETF providers and the world’s
largest asset managers, have been the main beneficiaries of the massive shift in assets. A
host of other money managers are now trying to package their passive as well as stock
and bond-picking strategies into ETFs to nab assets.
Some hedge funds, meanwhile, have trimmed fees or called it quits. Paul Tudor Jones,
for example, known for charging some of the highest fees in the hedge-fund industry,
has cut fees twice in the last year and a half.
Write to Sarah Krouse at sarah.krouse@wsj.com

https://www.wsj.com/articles/etfs-now-have-1-trillion-more-than-hedge-funds-1501588800 2/3
1/25/2021 Hedge fund industry assets surge to record $3.6tn | Financial Times
Hedge funds
Hedge fund industry assets surge to record $3.6tn
Sector delivered best performance in more than a decade in 2020
Share price information is displayed on screens at the London Stock Exchange offices © Getty Images
Ortenca Aliaj JANUARY 19 2021
Hedge fund assets hit a record last year as the industry delivered its best
performance in more than a decade during the most tumultuous year for markets
since the 2008 financial crisis.
Assets surged $290bn during the final three months of the year, marking the
biggest-ever quarterly jump and bringing total assets under management to a
record $3.6tn, according to data provider HFR.
Against a backdrop of rising markets, strong performance helped to boost hedge

fund assets. The HFRI Fund Weighted Composite index, which tracks a range of
strategies, gained 11.6 per cent in 2020, its best return since 2009. Meanwhile,
investors ploughed a net $16bn into the industry during the second half of the year,
HFR said.
The strong returns and inflows come as a source of relief for an industry that has
struggled to justify its place in investor portfolios following years of lacklustre
performance while charging high fees.
https://www.ft.com/content/6d757883-2800-469a-a719-af085568b53d 1/2
1/25/2021 Hedge fund industry assets surge to record $3.6tn | Financial Times
Over the past decade, hedge funds have been forced to compete with the
emergence of much cheaper tracker funds and a growing interest in other so-called
alternatives strategies such as private equity and private debt. In conversations
with their investors, managers insisted that they were handicapped by the longest
bull run in history and record-low interest rates but would outperform during a
downturn.
The benchmark S&P 500 still beat the average hedge fund last year, returning 18.4
per cent. The robust stock market recovery helped equity-focused funds
outperform other strategies and exceed $1tn in assets.
While hedge funds on the whole delivered strong returns, the coronavirus crisis
wrongfooted some of the industry’s biggest players.
Renaissance Technologies, the secretive hedge fund founded by Jim Simons, had
one of its worst years. Its Institutional Equities Fund lost close to 20 per cent,
while its Institutional Diversified Alpha declined by 31 per cent, investors said. The
fund’s assets dropped by $15bn to $60bn, according to people close to the firm,
due partly to outflows.
Bridgewater Associates, another stalwart of the industry, also had a difficult year,
though it managed to claw back some of its losses during the second half of 2020.
Its flagship Pure Alpha fund was down more than 10 per cent at the end of
December.
https://www.ft.com/content/6d757883-2800-469a-a719-af085568b53d 2/2
https://www.wsj.com/articles/bond-exchange-traded-funds-pass-1-trillion-in-assets-11561986396
ETFS
Bond Exchange-Traded Funds Pass $1

Trillion in Assets
Fixed-income ETFs are going to be ‘huge growth area,’ says BlackRock president
Rob Kapito, president of BlackRock, says the company predicts ixed-income ETFs will double in size within the next ive years.
PHOTO: BRENT LEWIN BLOOMBERG NEWS
By Asjylyn Loder
Updated July 1, 2019 5 37 pm ET
The amount of money in fixed-income exchange-traded funds passed $1 trillion last month, an
ascendance that has reshaped the market in which countries and companies raise money to pay
their bills.
Just 20 years ago, bond ETFs didn’t even exist. The bond market was a largely sleepy enterprise
that had long resisted the high-tech upheaval that transformed the way stocks are bought and
sold. Even today, the biggest bond trades can take hours, or even days, while billions of dollars
in stocks change hands in seconds.
But from that sleepiness came opportunity.
Firms such as BlackRock Inc., BLK 0.77% ▲ Invesco Ltd. and State Street Corp. put millions
behind building a new class of investment: the bond ETF. The idea was to straddle two
disparate markets by wrapping slow-to-trade bonds in lightning-fast funds. Like a mutual fund,
ETFs bundle together hundreds of bonds into a single ticker. Unlike mutual funds, ETFs trade
all day on a stock exchange just like shares of Apple Inc. or Bank of America Corp.
The product has never been more popular than it is today. All types of investors—from
pension funds to insurers to retirees—trade them daily.
The biggest proponents of bond ETFs say their growth has added much-needed speed to the
sluggish business of bond trading. This allows investors to move money swiftly when market
sentiment turns.
Skeptics argue that bond ETFs are a dangerous combination. They say the product could
accelerate a selloff if fleeing investors flood the debt market with more sell orders than it can
handle.
As this debate continues, bond ETFs just get bigger and bigger. Even the banks and hedge
funds that once viewed them as the competition are now big customers.
“Two or three years ago, a bank wouldn’t take our calls about fixed-income ETFs,” said Bill
Ahmuty, head of fixed income for State Street’s SPDR ETF business. “Now they’re calling us.”
One of the biggest hurdles to creating bond ETFs was the complexity of the fixed-income
market. A single company can have dozens or even hundreds of outstanding notes, each with
different interest rates, due dates and terms. Many transactions are still handled by phone and
instant messages, and some bonds don’t trade for days or even months.
Thin trading in some of these notes makes it particularly hard to figure out what debt is worth
in real time, but ETFs must post the value of their portfolios every 15 seconds.
To make this work, the creators of the first fixed-

Newsletter Sign-up income ETFs estimated the value based on other
information, like derivatives prices, interest rates
or transactions in similar bonds.
Since BlackRock bought iShares from Barclays

PLC in 2009, the company has devoted even more
resources to developing and trading bond ETFs.
BlackRock today manages about $6.5 trillion in

total assets, up from $1.3 trillion a decade ago.
In June, The Wall Street Journal sat down with one of the biggest beneficiaries of the bond ETF
boom: Rob Kapito, president of BlackRock. When asked about the liquidity-crunch criticism
bond ETFs most often get, Mr. Kapito responded with an eye roll.
Mr. Kapito made little effort to conceal his derision for armchair alarmists.
“A lot of your colleagues have been trying to find a fault with this thing,” Mr. Kapito said. “It’s a
pent-up desire that hasn’t been fulfilled, because it actually works.”
Mr. Kapito spent much of his early career trading bonds, as did BlackRock Chief Executive
Laurence Fink.
BlackRock’s iShares ETF business was the first to introduce fixed-income ETFs in 2002.
Today, roughly half of the assets in fixed-income ETFs are in iShares funds. Investors in
BlackRock’s U.S. fixed-income ETFs pay more than $600 million a year in fees, almost 20% of
iShares’ domestic haul, according to Morningstar estimates.
That is a pittance compared with the potential BlackRock is banking on. Mr. Kapito points out
that ETFs own less than 1% of the world’s debt, leaving more than $100 trillion that has yet to be
repackaged into ETFs.
It took 17 years to raise the first $1 trillion, but BlackRock predicts fixed-income ETFs will
double in size within the next five years.
“We believe that this is going to be a huge growth area for the firm,” Mr. Kapito said.
Even so, critics remain concerned that the growth of fixed-income ETFs could distort bond
pricing.
Caitlin Dannhauser, an assistant professor of finance at Villanova University, says her research
found that bonds that are more exposed to an ETF exodus take a bigger hit during bouts of
turbulence than those that aren’t. Battered bond prices could make it harder and more
expensive for firms to borrow money.
“It could be really disruptive for a company that has a lot of bonds exposed to ETF outflows,”
Ms. Dannhauser said.
Those fears haven’t slowed the growth of the industry. Fixed-income ETFs raised $33.7 billion
in June for their best month in history.
The ETFs are especially popular when there is fast-moving market news and bond trading is too
slow to keep up. In June, when the Federal Reserve hinted that it would lower interest rates
later this year, the oldest iShares corporate-debt ETF had one of its busiest trading days on
record, with more than $3 billion changing hands.
To receive our Markets newsletter every morning in your inbox, click here.
Write to Asjylyn Loder at asjylyn.loder@wsj.com

7/5/2021 Mutual Funds vs. ETFs: What Investors Should Know - WSJ
https://www.wsj.com/articles/mutual-funds-vs-etfs-what-investors-should-know-11625401526
NEED TO KNOW
Mutual Funds vs. ETFs: What Investors Should Know

The differences in costs, performance, how you buy them—and more
There is $21 trillion in mutual funds and $6.2 trillion in ETFs. Both are baskets of stocks, bonds and
other investments.
PHOTO: ISTOCKPHOTO/GETTY IMAGES
By Ari I. Weinberg
July 4, 2021 8:25 am ET
For years, mutual funds and exchange-traded funds have been cast as an either/or
decision for investors. Mutual funds are expensive, stodgy, yesterday’s news. ETFs are
cheap, flashy, hip to the future.
The real differences between these fund cousins, however, aren’t as stark. Yes, unlike
mutual funds, ETFs trade on an exchange all throughout the day. But beyond that, ETFs
are just mutual funds with a few extra features.
So, what’s the big deal? Here are answers to common questions about the two types of
fund investments.
https://www.wsj.com/articles/mutual-funds-vs-etfs-what-investors-should-know-11625401526?mod=markets_lead_pos12 1/8
• What are these funds to begin with?
Mutual funds and ETFs are both baskets of stocks, bonds or other securities that allow
individual investors to participate in the market without being at the mercy of a single
security. There could be a few dozen stocks in a particular fund, or thousands. Some funds
merely try to match the market, so you’ll be riding along with Wall Street’s overall gains
or losses, while others target specific sectors (like tech stocks), which could zoom or drop
apart from the overall market. Some funds are even highly leveraged (you’ll see 2x or 3x in
their names), which ramps up the risk.
SHARE YOUR THOUGHTS
What other questions do you have about funds and ETFs? Join the conversation below.
The modern mutual fund has its roots in the 1929 stock-market crash. Among the
corrective legislation birthed by the ensuing financial crisis was the Investment Company
Act of 1940, which established rules for mutual funds.
Mutual funds held $21 trillion (both stock and bond funds) through April, while exchange-
traded funds held $6.2 trillion, according to the Investment Company Institute. (Both
types of funds are regulated by the Securities and Exchange Commission.)
• Who controls the investments?
Ultimately, the investment direction of funds is guided by a portfolio manager, working at

an asset manager like Fidelity Investments or BlackRock, BLK 1.64% ▲ or a financial
advisory firm. Managers, meanwhile, are overseen by a board of directors that ensures
that the product is being managed according to its stated mandate, that fees are
reasonable, and its valuation is accurate.
Percentage of total net assets in fund markets
Actively managed mutual funds and ETFs

Index mutual funds
Index ETFs
2010
9%
10% TOTAL
ASSETS
$9.9
trillion
81%
2020
21%
$24.9
trillion
19% 60%
Note: Data for ETFs exclude non–1940 Act ETFs. Data for
mutual funds exclude money-market funds.
Source: Investment Company Institute’s 2021 Fact Book
• What do they cost?
The baseline cost of an ETF or mutual fund is its expense ratio, the effective annual fee
charged to the fund for investment management and administration. And that cost
depends heavily on which investment strategy the fund uses: active—whereby the
portfolio manager selects securities based on valuation, momentum or other traits—or

passive, in which the fund is expected to hew to an index, such as the S&P 500.
ETFs often have lower expenses than mutual funds, because they tend to be passive and
so don’t require the research that comes with active management. Mutual funds that are
passive also tend to have lower expenses than their active counterparts.
For example, the asset-weighted average expense ratios for all stock-index mutual funds
and ETFs were 0.06% and 0.18%, respectively, at the end of 2020. Compare that with an
expense rate of 0.71% for active equity mutual funds, according to the Investment
Company Institute.
• What about performance?
Nothing has upset the apple cart of the fund industry more in the past few decades than
the rise of low-cost indexing. According to S&P Dow Jones Indices, 86% of U.S. equity
funds underperformed their benchmark over the 20-year period ended Dec. 31, 2020.
While index funds—in part because of expenses—don’t tend to return as much as their
index, they definitely limit the chance of significant underperformance.
The ready availability of low-cost index ETFs for multiple asset classes, sectors and styles
has driven flows to these funds. ETFs have gathered $1.9 trillion over the past five years,
compared with $1 trillion in outflows from mutual funds (excluding money-market funds,
which are considered a cash holding).
• How do I buy a mutual fund?
Mutual funds are bought directly from the fund company or through an intermediary, like
a financial adviser or brokerage account. This purchase may include a transaction fee, a
sales load—that is, a charge based on the amount purchased or held—and a 12b-1 fee,
which is earmarked for marketing and distribution. But, thanks to the rise of ETFs, which
have no loads and require only a brokerage account for buying and selling, no-load mutual
funds have tripled in assets ($15 trillion) over the past 10 years, while funds with a sales
load were flat ($2.5 trillion). The price is called the net asset value (NAV) per share, and
the money or shares are generally posted to your account the next day.
• How do I buy an ETF?
ETF trading is done only through a brokerage account and, like any securities trading, has
its pitfalls. For instance, market orders to buy or sell at the prevailing price often are safe
for large, liquid ETFs. But this can backfire in thinly traded products, which can be more
susceptible to big price swings. Understanding limit-order types—in which you set
parameters for the price and amount you are willing to buy or sell—is critical for ETF
investors.
It is also important to bear in mind that trade settlement for ETFs, like other listed
securities, is two days, while for mutual funds it is one day.
• My 401(k) doesn’t offer ETFs. Does that matter?
Despite the fast growth of ETFs, a big reason that their assets still trail mutual funds is
that ETFs aren’t common in retirement accounts. Mutual funds remain one of the
dominant options there for a variety of reasons. For instance, it is easier for the 401(k)
plan to move money into funds—and investors often park that money in a fund and keep it
there.
• Do ETFs have NAVs?
ETFs, confusingly, have two “prices.” The first “price” is the price of shares trading on
stock exchanges. The second “price” is the NAV, like regular mutual funds, yet the only
investors who have access to the NAV are brokers known as authorized participants.
These middlemen pay attention to small differences between the trading price and the
value of a published basket of securities that the fund is willing to accept each day in
exchange for new shares. If there is high demand for an ETF, its shares might be
marginally more expensive than the basket (think pennies). In this case, the authorized
participant would sell shares short in the market, while exchanging the basket of
securities for new shares of the ETF (which are then used to close the short position). This
activity keeps the trading price and the NAV of the ETF in line.
• Are ETFs better for taxes?
They share some similarities with mutual funds. Dividends from ETFs are treated no
differently than dividends from mutual funds for tax purposes. And index investments,
whether ETFs or mutual funds, have historically distributed relatively little capital gains.
But there’s one difference in that ETFs by their nature may experience smaller capital
gains. The manner by which ETF shares are created and redeemed increases the cost basis
of the underlying securities—minimizing any potential capital gains if and when the fund
needs to actually sell assets. Potentially, individual investors could have a smaller capital-
gains bill in an ETF than in a comparable mutual fund.
• My adviser says ETFs are better. Is that true?
Not necessarily. Low-cost index products allow investors to take more control over their
portfolio’s risk-and-return profile. With the elimination of ETF commissions at many
brokerages, using ETFs for this type of investing has only become easier, whether through
financial advisers or automated investing platforms. In fact, asset-management
behemoth BlackRock predicts that 50% of ETF flows in the coming years will be driven by
automated models.
Yet simple portfolios of mutual funds (or even just one fund) can end up being both
cheaper and easier to manage than a portfolio of ETFs, which require trading and have
more complex settlement.
• What’s next?
Mutual funds and ETFs have had a good run. But just as ETFs brought out doomsayers on
the demise of the traditional mutual fund, a new generation is predicting the demise of
funds altogether. They point to new technology that allows investors to buy fractional
shares of stock or build their own “index fund”—by easily buying lots of stocks in an index
directly.
But what they often don’t account for are all of the other complications that go with
investing—taxes, accounting, and voting on corporate actions such as mergers and other
proxy issues. These are all activities that add time (and headaches) to the investment
process—and exactly what funds and ETFs are built to handle.
Mr. Weinberg is a writer in Connecticut. He can be reached at reports@wsj.com.
Copyright © 2021 Dow Jones & Company, Inc. All Rights Reserved
8/10/2017 How Individual Investors Can Invest Like a Hedge Fund - WSJ
DJIA ▼ 21926.62 -0.55% Nasdaq ▼ 6283.48 -1.08% U.S. 10 Yr ▲ 7/32 Yield 2.214% Crude Oil ▼ 49.51
http://www.wsj.com/articles/how-individual-investors-can-invest-like-a-hedge-fund-1407106285
JOURNAL REPORTS: WEALTH MANAGEMENT
How Individual Investors Can Invest

Like a Hedge Fund
A Look at Three Ways to Invest Like a Hedge Fund Without Hefty Expenses
JAMES YANG
By Rob Copeland and Gregory Zuckerman

August 3, 2014
Everyone wants to be a hedge-fund manager these days, it seems. Or at least they want
to invest like one.
Now, individual investors have more

opportunities to get in on the action.
Hedge funds, private partnerships that bet both on and against various investments,
manage more money than ever, and interest in them remains strong. Over the past 15
years, their returns have beaten the overall stock market, helping drive the boom. Hedge
funds also navigated the 2008 downturn with smaller losses than stock mutual funds,
and tend to attract the best and brightest from Wall Street, largely because they pay top
salaries.
https://www.wsj.com/articles/how-individual-investors-can-invest-like-a-hedge-fund-1407106285 1/5
The love affair has endured even though

JOURNAL REPORT hedge funds have underperformed the
Insights from The Experts broader market since 2009, when stocks
Read more at WSJ.com/WealthReport began rallying. From then through June of
this year, the average hedge fund is up 50%,
according to HFR Inc. The S&P 500 climbed
MORE IN INVESTING IN FUNDS & ETFS
137%, including dividends, over that time.
New Funds Bet That Women Run Companies
Better Stocks today are expensive, and hedge funds'
Lessons From a Mutual-Fund Reporter ability to buy stocks, bonds and commodities,
Stock Funds Fell 2.7% in July; Bonds Declined as well as bet against overpriced investments,
0.3% is valued in challenging markets. If the
We Test the New 'Robo Advisers' for ETFs Federal Reserve begins raising interest rates
next year and the market runs into problems,
hedge funds might be best positioned to take
PODCAST: Daisy Maxey tells WSJ's advantage.
Mathew Passy about mutual funds
that have a strong focus on companies The problem is, only "accredited" investors
with women in leadership roles. are legally allowed to invest with hedge funds
because of the perceived risks. And even if an
investor vaults over this threshold—defined
as an individual whose annual income tops $200,000 or whose net worth exceeds $1
million, excluding a primary residence—hedge funds generally charge hefty fees of
about 20% of any gains and about 2% of assets annually.
In recent years, however, more options have emerged that allow even small investors to
engage in hedge-fund-style investing without big fees. Here is a look at the advantages
and risks of three of these approaches.
Hedge-Fund Lite
The closest most small investors can get to hedge-fund-like investing is through
"alternative" mutual funds. As with hedge funds, most of the money in these newer
mutual funds is in portfolios that use a long/short investing strategy: They can both bet
on individual stocks going up (in industry parlance, "going long") and profit from others
going down ("shorting").
The largest such fund, MainStay Marketfield, has assets of about $20 billion and has
been around since 2007.
One advantage long/short mutual funds have over hedge funds is transparency. While
most sizable hedge funds disclose their stockholdings on a quarterly basis, they don't
share information about their short positions and debt holdings. By contrast, long/short
mutual funds must provide a public list of quarterly positioning, along with other data.
As such, investors can track a manager's views, and decide whether they agree with
them. Long/short mutual funds also can be bought and sold on a daily basis, unlike a
hedge fund.
MORE IN WEALTH MANAGEMENT
Although these mutual funds don't charge performance fees like hedge funds do,
they collect hefty annual management fees that in some cases approach 4% of
assets. This acts as a hurdle to jump over every year, and it creates an incentive for
managers to amass ever larger piles of money to invest, which can hurt
performance. The average actively managed mutual fund, by comparison, charges a
1.2% annual expense fee, according to Morningstar.
Lori Van Dusen, who helps clients invest billions at LVW Advisors in Pittsford, N.Y.,
says this year she began recommending that clients consider long/short stock
mutual funds for the first time since the financial crisis. "We are long in the tooth in
the profit cycle, and equities do not remain the bargain they were a few years ago,"
she says.
Still, Ms. Van Dusen says she is selective about the funds she recommends. "If I don't
understand where the source of returns is coming from, we're not going to invest in
it."
Among the funds she recommends are some run by Boston Partners, a division of
Robeco Investment Management Inc.
Replicating Returns
Another fast-growing area is so new proponents can't agree on a name. Sometimes
called "replication" funds and other times "liquid beta," these vehicles try to imitate
the performance of hedge-
fund benchmarks, much like
an exchanged-traded fund
tries to produce the results of
an underlying index.
ETFs, however, know the components of the indexes they try to copy. Because hedge
funds keep some of their positions secret, beta funds take a different tack: They
"backtest" their portfolios of stocks, bonds, currencies and other assets—meaning they
do a simulation of a trading strategy on prior time periods—until they approximately
copy the trailing returns of the average hedge fund as tracked by research firms like
HFR.
"This works surprisingly well," says Andrew Beer, chief executive officer of New York-
based Beachhead Capital Management LLC, whose firm runs one such strategy for
wealthy investors.
Mr. Beer says that even though his fund may not be able to exactly duplicate what the
biggest hedge funds are doing, Beachhead is able to match their returns because of lower
fees.
One problem for such funds: Most successful wealthy investors look for hedge funds
that beat their peers, not match them. And if hedge funds continue to do worse than the
overall stock market, investors betting on the broad hedge-fund sector could have
regrets.
One big player, IndexIQ, celebrated its five-year track record this year for its replicator
fund, IQ Hedge Multi-Strategy Tracker ETF. The fund has an average annualized return
of more than 4% over that time. Other funds in the space include Credit Suisse
Multialternative Strategy fund and ASG Global Alternatives fund.
Copycat Investing
Another low-cost way to trade like a hedge-fund manager is to ape the best-performing
funds. Even top hedge funds employ this technique, keeping a close eye on each other's
holdings. The approach is fraught with risk, however.
Hedge funds with portfolios of more than $100 million of public securities must file 13F
forms with the SEC in which they list a snapshot of their largest stockholdings. (They
don't have to disclose other positions.) The forms must be filed within 45 days of the
close of each quarter, and investors can search these filings on the SEC's website. One
tip: Look for new and increased positions of top hedge-fund firms to get a sense of the
companies the funds are bullish about, along with decreased and "sold out" positions for
those the firms seem more pessimistic about. Among the hedge-fund firms with stellar
long-term performances worth keeping an eye on: Appaloosa Management LP, Lone
Pine Capital and Greenlight Capital Inc.
Services such as FactSet 's LionShares, InsiderMonkey.com and whalewisdom.com will

analyze these filings for investors.
Individuals also can hop a ride on disclosures from successful activist hedge-fund
investors—who publicly prod companies to take steps to boost their stock prices—
through a vehicle such as 13D Activist Fund. The fund combs through the 13D filings of
activist investors and bets on companies where it believes activist campaigns have the
best chance of succeeding.
The problem with copycat investing is that the information can be quite stale by the
time it's released; 45 days can be an eternity in the hedge-fund world. Also, funds may
own shares simply as a hedge against a stock in the same sector, or as part of other
moves that don't necessarily reflect how a manager feels about a company.
But that comes with the territory if you want to invest like a hedge fund.
Messrs. Copeland and Zuckerman are reporters for The Wall Street Journal in New York.
Email them at rob.copeland@wsj.com and gregory.zuckerman@wsj.com.
Corrections & Amplifications
The threshold to qualify as an "accredited" investor is annual income topping $200,000

or a net worth exceeding $1 million, excluding a primary residence. An earlier version of
this article incorrectly said that both qualifications are necessary. (Aug. 6, 2014)
Copyright ©2017 Dow Jones & Company, Inc. All Rights Reserved
'Absolute Return' Funds Promise Gains Without Pain - WSJ.com http://online.wsj.com/article/SB1000142405274870370100457511382...
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April 5, 2010
PORTFOLIO STRATEGY
'Absolute return' funds aim to make money even when markets go down. While the appeal is clear, the track
record is mixed.
By ANNELENA LOBB
'Absolute return" funds aim to deliver gains whether markets rise or fall, a goal critics say sets up
investors for disappointment.
Most mutual funds have "relative" rather than absolute

objectives: They aim to beat or track a benchmark, such
as the Standard & Poor's 500-stock index. But after the
stock-market rout in 2008 and early 2009, as well as a
decade that ended with little progress by major stock
indexes, products that sound like surer bets are gaining
traction among skittish investors.
There are now 22 funds with "absolute" in their names,

up from four in 2005, according to Morningstar Inc.
Wesley Bedrosian
Among the newer entrants is Putnam Investments, with

more than $1 billion in a series of four absolute-return funds launched in December 2008. Other
funds with similar goals exist but may not use "absolute" in their names.
Some question whether the funds can deliver consistent gains.
"The name 'absolute return' implies positive returns in any market environment, regardless of
strategy. That mandate is very difficult," says Nadia Papagiannis, alternative-investment strategist
at Morningstar. "We haven't seen anybody do it."
Different Approaches
There are wide variations among the declared absolute-return funds. Some primarily buy stocks,
while others mostly hold bonds. Many use commodities, derivatives or other alternative
investments, as well as traditional stocks and bonds, to pursue their goals.
Some of the declared absolute-return funds are "long-short" funds, meaning that in addition to
buying securities they predict will appreciate over time, fund managers also take short positions
in, or bet against, securities they anticipate will fall. The approach, borrowed from hedge funds,
potentially allows the funds to make money even in a down market. Goldman Sachs Absolute
Return Tracker and Nakoma Absolute Return are among the more than 90 funds Morningstar
categorizes as long-short funds.
The absolute-return funds state their objectives in various ways. The Eaton Vance Global Macro
Absolute Return prospectus, for example, says the fund's goal is total return, defined as "income
plus capital appreciation." The fund focuses on fixed income and derivatives in various countries
1 of 3 9/25/2013 9:42 AM
and currencies. "We're looking to deliver positive returns, year in, year out, in all market
environments," says Michael Cirami, vice president and co-manager of the fund.
Harness Absolute Return, meanwhile, gives its objective in its prospectus as "positive absolute
returns above inflation, regardless of the performance of traditional markets." The document later
says the fund "seeks to provide returns above inflation of three-to-five percent over rolling
three-year periods with moderate levels of volatility."
The four Putnam funds aim to beat inflation by a set margin—seven, five, three and one
percentage points, annualized, respectively—"over a reasonable period of time (generally three
years or more)." Putnam Absolute Return 100 and Putnam Absolute Return 300 invest across
global fixed-income sectors; the 500 and 700 funds buy a mix of bonds, stocks and alternative
assets.
Mixed Returns
Results so far have been mixed, and most funds don't have long track records. Funds with
"absolute" in the name have returned 0.67% so far this year and 11.56% in the past 12 months, on
average, through March, according to Morningstar. Those averages lag behind both stock and
bond funds in general: Stock funds have returned 5.02% this year, and 56.88% in the past 12
months, on average; bond funds returned an average 2.03% this year and 17.34% in 12 months.
Journal Reports
Some of the absolute-return funds show negative
returns. Nakoma Absolute Return is down 2.59%
See the full report.
year-to-date and down 10.37% in the 12 months
through March, says Morningstar.
"If you look at what happened last year, we were long higher-quality and short lower-quality"
companies, says John Mueller, head of marketing and client services. But lower-quality
companies led the rally that began last spring, he says.
Others have fared a bit better. Eaton Vance launched its fund in June 2007, though it managed
institutional money using the same strategy from 1997 to 2007. The fund, with a recent $1.9
billion in assets, has returned 1.79% in 2010 and 11.47% over the past year, through March,
according to Morningstar. The company says the fund and strategy haven't had a negative
12-month period over the past 10 years.
Putnam Investments says it is optimistic about meeting its goals over three-year periods. Putnam
Absolute Return 700, which aims to top inflation by seven percentage points, has returned about
12.22% annualized from inception through March, according to Morningstar. The 500 Fund has
returned 8.53%; the 300 Fund, 6.85%; and the 100 Fund, 3.35%. Returns are for Class A shares.
Inflation has been about 2.7% from January 2009 through February 2010, according to the most
recent data available from Morningstar.
"I don't think we've set our sights too high," says Jeff Knight, managing director and the head of
global asset allocation at Boston-based Putnam Investments. He says absolute return "is the next
big category in the mutual-fund business."
Jeff Dunham, chief executive of Dunham & Associates Investment Counsel Inc. in San Diego, also
anticipates a major push into the category. Dunham manages approximately $1.1 billion, including
the absolute-return-oriented Dunham Monthly Distribution, with a recent $61 million in assets,
according to Morningstar. Mr. Dunham says that in a year or so, with interest rates potentially on
the rise, there will be enormous demand for more investments that produce a reasonably steady
rate of return and aren't bond funds.
Bond funds took in a lot of new money in 2009. But if interest rates and inflation climb, he says,
investors are likely to get hurt. "When people say, 'Where should I go?,' we and our other
2 of 3 9/25/2013 9:42 AM
long-short friends will be there," Mr. Dunham says. His firm plans to launch a second absolute-
return fund in coming weeks.
Even Vanguard Group, known for low-cost investing, is considering giving retail investors access
to an absolute-return fund. In January, Vanguard filed an exemptive-relief form with the
Securities and Exchange Commission. If relief is granted, it would allow the three Vanguard
Managed Payout funds to invest up to 20% of assets in Vanguard Alternative Strategies Fund, an
Irish-domiciled fund that uses absolute-return strategies but currently has no public shareholders.
The Managed Payout funds—which aim to provide steady retirement income while preserving
principal—presently invest in funds that hold stocks, bonds, cash, and other assets.
Vanguard hasn't decided whether to proceed if it gets SEC approval. Still, the firm "may be able to
provide some value-added in this space, if we can do it the way Vanguard does things—low cost,
and so on," says John Ameriks, a principal and head of investment counseling and research.
Absolute-return investments could diversify a fund or portfolio, he says, but they aren't "a silver
bullet."
—Ms. Lobb is a writer in New York. She can be reached at reports@wsj.com.
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by
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3 of 3 9/25/2013 9:42 AM
Liquid alternatives fail to deliver on promise of returns - FT.com http://www.ft.com/intl/cms/s/0/f508d770-3832-11e4-9fc2-00144feabdc0...
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Chris Flood
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University of Alabama academics says investors would have been better off using index funds tracking the S&P 500
Mutual funds that employ hedge fund strategies, known as liquid alternatives, are arguably the hottest investment trend of the moment,
attracting interest from a growing number of investors as well as that of regulators.
But most liquid alternatives have not created any value for investors and have failed to deliver on their promise to provide positive returns
regardless of market conditions, according to research by academics at the University of Alabama.
The research, which examined the performance of 318 alternative mutual funds between January 2008 and December 2011, found that the
performance was even worse during the financial crisis.
Investors, the academics say, would have been better off using index funds tracking the S&P 500 than equity liquid alternatives over the entire
four year period.
“Investors should be wary of having unrealistic expectations of the performance and diversification benefits of these alternative mutual funds,”
says professor Robert McLeod.
The warning, however, comes as assets in US liquid alternatives pass the $300bn mark, while assets in alternative Ucits have reached some
€236bn ($306bn).
McKinsey, the consultancy, says up to half of net new revenues from US retail investors could flow into liquid alternatives over the next five
years, driven by greater adoption by registered investment advisers and the large brokers (wirehouses).
Liquid alternatives proliferated after the repeal in September 1997 of the so-called “short-short” rule that heavily taxed mutual fund managers
if they earned more than 30 per cent of their gross income from sales of securities held for less than three months.
Deutsche Bank forecasts that liquid alternatives will attract $49bn of new cash over the next 12 months, up from $34bn over the past year,
with inflows accelerating from private banks, wealth managers, funds of funds and institutional asset managers.
Indeed, almost three quarters of investors that use alternative Ucits and nearly two-thirds of those investing in US liquid alternatives plan to
increase their allocations over the next 12 months, according to Deutsche, which surveyed 212 investors and 86 hedge fund managers.
But Deutsche’s survey also points to performance issues. It found that 31 per cent of the US managers it surveyed held products that
1 of 2 9/24/2014 7:34 PM
Liquid alternatives fail to deliver on promise of returns - FT.com http://www.ft.com/intl/cms/s/0/f508d770-3832-11e4-9fc2-00144feabdc0...
underperformed their corresponding hedge fund strategy. This was still an improvement on the previous year when that number was 50 per
cent.
“Poor performance is cited as the primary challenge to investing in liquid alternatives for 11 per cent of responding investors,” says Deutsche.
Onur Erzan, a director at McKinsey, says liquid alternatives are typically more complex than traditional mutual funds and require investors to
perform thorough due diligence so they properly understand how these products match their risk appetite and asset allocation requirements.
Constraints on leverage and liquidity can hinder their performance compared with full blooded hedge funds.
A 2013 study by Cliffwater, the consultancy, found that investor returns on average were reduced by around 1 per cent a year for the better
liquidity offered by liquid alternatives. Cliffwater said it could not judge if the performance shortfall was a “fair exchange” for the improved
liquidity offered by alternative mutual funds.
Josh Charlson, director of research for alternative strategies at Morningstar, says it can be problematic for investors to make “apples to apples”
performance comparisons. “There is a clear trade off in giving up some of the illiquidity premium in hedge funds but gaining through the lower
fee structures of liquid alternatives,” he says.
Fees are also generally higher for liquid alternatives than for traditional mutual funds, a point that Vanguard, the low-cost fund company, has
been at pains to emphasise.
Vanguard also found that allocating 10 per cent of a global stock and bond portfolio to a range of liquid alternatives between 2007 and 2013
resulted in lower or unimproved Sharpe ratios (risk adjusted returns), an outcome that would not meaningfully improve an investor’s spending
power.
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MǺŘĶĚȚȘ | ỲǾŲŘ MǾŇĚỲ | ẄĚǺĿȚĦ ǺĐVİȘĚŘ
‘Ǻŀťěřňǻťįvě’ Mųťųǻŀ Fųňđș Přǿvįđįňģ
Ŀįmįťěđ Přǿťěčťįǿň
Ǻș țħě Ų.Ș. șțǿčķ mǻřķěț țųmbŀěđ įň țħě pǻșț țħřěě mǿňțħș, țħěșě fųňđș đįđň’ț přǿvįđě ǻ ŀǿț
ǿf șħěŀțěř
Investors have sought out a variety of ‘alternative’ investments to hopefully shield them from rough days in the stock
market. PHOTO: ALLISON CARTER/THE TIMESDAILY/ASSOCIATED PRESS
Bỳ ǺŇŇĚ ȚĚŘĢĚȘĚŇ ǻňđ ǺŇŇǺ PŘİǾŘ

Ųpđǻțěđ Ǻųģ. 28, 2015 5:20 p.m. ĚȚ
Șįňčě țħě mǻřķěț čřǻșħ ǿf 2008, mǿřě įňvěșțǿřș ħǻvě ěmbřǻčěđ țħě įđěǻ ǿf ǿẅňįňģ ǻň
ǻřřǻỳ ǿf įňvěșțměňțș—fřǿm čǿmmǿđįțįěș țǿ ħěđģě-fųňđ-ŀįķě mųțųǻŀ fųňđș țǿ ěňěřģỳ
http://www.wsj.com/articles/alternativemutualfundsprovidinglimitedprotection1440525717 1/5
pǻřțňěřșħįpș. Țħě ģǿǻŀ įș țǿ řěđųčě řįșķ ǻňđ mǿđěřǻțě țħě ųpș ǻňđ đǿẅňș ǿf ǿẅňįňģ
șțǿčķș.
Bųț ǻș țħě Ų.Ș. șțǿčķ mǻřķěț țųmbŀěđ įň țħě pǻșț țħřěě mǿňțħș, șǿ-čǻŀŀěđ ǻŀțěřňǻțįvě
mųțųǻŀ fųňđș đįđň’ț přǿvįđě ǻ ŀǿț ǿf șħěŀțěř.
Ẅħįŀě mǿșț čǻțěģǿřįěș ǿf fųňđș țħǻț ǻřě șǿměțįměș čħǻřǻčțěřįżěđ ǻș “ǻŀțěřňǻțįvěș” ŀǿșț
ŀěșș țħǻň țħě Ș&P 500 șțǿčķ įňđěx įň řěčěňț mǿňțħș, țħěỳ ģěňěřǻŀŀỳ đěčŀįňěđ bỳ mǿřě
țħǻň Ų.Ș. įňțěřměđįǻțě-țěřm bǿňđ fųňđș, țħě čŀǻșșįč pǿřțfǿŀįǿ đįvěřșįfįěř. Țħě ǻvěřǻģě
įňțěřměđįǻțě-țěřm bǿňđ fųňđ ŀǿșț jųșț 0.6% fřǿm țħě mǻřķěț’ș pěǻķ Mǻỳ 21 țħřǿųģħ įțș
ŀǿẅ fǿř țħįș ỳěǻř. Ǻvěřǻģě řěțųřňș fǿř 13 fųňđ čǻțěģǿřįěș vįěẅěđ ǻș ǻŀțěřňǻțįvěș țǿ
mǻįňșțřěǻm șțǿčķș ǻňđ bǿňđș řǻňģěđ fřǿm ǻ ŀǿșș ǿf 1.6% țǿ ǻ ŀǿșș ǿf 22% đųřįňģ țħě
pěřįǿđ, ǻččǿřđįňģ țǿ įňvěșțměňț řěșěǻřčħěř Mǿřňįňģșțǻř İňč.
Ǻmǿňģ țħě mǻňỳ ǻșșěț čŀǻșșěș ǻňđ șțřǻțěģįěș țħǻț čǻň fįț ųňđěř țħě ǻŀțěřňǻțįvěș
ųmbřěŀŀǻ, ǻ fěẅ șțųmbŀěđ bǻđŀỳ. Ẅħįŀě țħě Ș&P ŀǿșț 12% (įňčŀųđįňģ đįvįđěňđș) fřǿm ǻ
pěǻķ ǿň Mǻỳ 21 țħřǿųģħ Țųěșđǻỳ—ẅħěň șțǿčķș ħįț ǻ ŀǿẅ—čǿmmǿđįțįěș fųňđș, fǿř
ěxǻmpŀě, đěčŀįňěđ ǻň ǻvěřǻģě 17%, ǻččǿřđįňģ țǿ Mǿřňįňģșțǻř. Ǿvěř țħǻț șǻmě pěřįǿđ,
ěměřģįňģ-mǻřķěț șțǿčķ fųňđș ǻňđ fųňđș țħǻț įňvěșț įň ěňěřģỳ mǻșțěř ŀįmįțěđ
pǻřțňěřșħįpș ẅěřě ǿff 21 ǻňđ 22%, řěșpěčțįvěŀỳ.
Ẅħįŀě Ų.Ș. įňțěřměđįǻțě-țěřm bǿňđ fųňđș țřěǻđěđ ẅǻțěř, ěvěň țħě běșț-pěřfǿřmįňģ
ǻŀțěřňǻțįvěș čǻțěģǿřįěș, įňčŀųđįňģ mǿșț čǻțěģǿřįěș ǿf ħěđģě-fųňđ-ŀįķě mųțųǻŀ fųňđș, ŀǿșț
mǿřě ģřǿųňđ.
Țħě ŀǻčķŀųșțěř-țǿ-pǿǿř řěțųřňș ǿf țħěșě fųňđș ħǻș șțǿķěđ đěbǻțě ǿvěř țħě vǻŀųě ǿf ǻđđįňģ
řěŀǻțįvěŀỳ ěxǿțįč fǻřě țǿ ǻ șțǻňđǻřđ pǿřțfǿŀįǿ ǿf șțǿčķș, bǿňđș ǻňđ čǻșħ.
Přǿpǿňěňțș ǻřģųě șųčħ ǻň ǻppřǿǻčħ čǻň ħěŀp įňđįvįđųǻŀ įňvěșțǿřș ěǻřň ħįģħěř řěțųřňș.
Țħěỳ pǿįňț țǿ țħě ẅįđěŀỳ đįvěřșįfįěđ įňvěșțměňț ħǿŀđįňģș ǿf mǻňỳ pěňșįǿň pŀǻňș, ẅħįčħ
ħǻvě ěǻřňěđ 6.7% ǻ ỳěǻř ǿň ǻvěřǻģě șįňčě 2006, věřșųș 5.9% fǿř 401(ķ)-șțỳŀě pŀǻňș,
ǻččǿřđįňģ țǿ čǿňșųŀțįňģ fįřm Čǻŀŀǻň Ǻșșǿčįǻțěș İňč.
Ǻŀțěřňǻțįvěș țħǻț řěđųčě țħě vǿŀǻțįŀįțỳ ǿf ǻ pǿřțfǿŀįǿ—ǻňđ țħě ǻmǿųňț įț đřǿpș įň ǻ șțǿčķ
đǿẅňđřǻfț—čǻň ħěŀp įňvěșțǿřș ěǻřň ħįģħěř řěțųřňș ǿvěř țįmě, șǻỳș Ňįčķ Ķǻŀįvǻș, șěňįǿř
ěqųįțỳ șțřǻțěģįșț ǻț İňvěșčǿ PǿẅěřȘħǻřěș, ǻ ųňįț ǿf İňvěșčǿ Ŀțđ. țħǻț șpǿňșǿřș ěxčħǻňģě-
țřǻđěđ fųňđș ųșįňģ ǻŀțěřňǻțįvě ǻňđ ǿțħěř ǻppřǿǻčħěș. Ǻ “șmǻŀŀěř đěčŀįňě ẅįŀŀ mǻķě įț
ěǻșįěř” țǿ řěčǿųp ŀǿșșěș ǻňđ ǿųțpěřfǿřm “ǻčřǿșș țħě mǻřķěț čỳčŀě,” ħě șǻỳș.
Bųț șǿmě fįňǻňčįǻŀ ǻđvįșěřș șǻỳ țħěřě įș ŀįțțŀě vǻŀųě įň ħǿŀđįňģ șųčħ fųňđș, ģįvěň țħǻț
mǻňỳ ħǻvě ħįģħ ěxpěňșě řǻțįǿș

ǻňđ țħě fųňđș mǻỳ ňǿț
pěřfǿřm ǻș ẅěŀŀ ǻș țřǻđįțįǿňǻŀ
Ų.Ș. bǿňđ fųňđș įň ǻ pěřįǿđ ǿf
mǻřķěț țųřmǿįŀ.
İf ỳǿų ǻřě ŀǿǿķįňģ fǿř ǻ ħǻvěň,

“Ų.Ș. Țřěǻșųřỳș ǻřě șțįŀŀ țħě
běșț ǻŀțěřňǻțįvě țǿ ěqųįțįěș,”
șǻỳș Řįčķ Fěřřį, fǿųňđěř ǻňđ
mǻňǻģįňģ pǻřțňěř ǿf Pǿřțfǿŀįǿ
Șǿŀųțįǿňș ĿĿČ įň Țřǿỳ, Mįčħ.
Țħǿșě ẅħǿ ẅǻňț ěxpǿșųřě țǿ
șųčħ ǻŀțěřňǻțįvě-ǻșșěț čŀǻșșěș
ǻș țįmběř ǻňđ čǿmmǿđįțįěș,
ħě ǻđđș, “čǻň ģěț įț įň ǻ țǿțǻŀ
șțǿčķ-mǻřķěț įňđěx fųňđ.”
Șųčħ ǻ fųňđ įňčŀųđěș șħǻřěș ǿf
čǿmpǻňįěș įňvǿŀvěđ įň țħǿșě įňđųșțřįěș, ħě ěxpŀǻįňș—ǻŀțħǿųģħ ňǿț pųřě ěxpǿșųřě țǿ
čǿmmǿđįțỳ přįčěș.
“İň țħě ěňđ, ǻ mįx ǿf șțǿčķș ǻňđ bǿňđș řěbǻŀǻňčěđ ǻňňųǻŀŀỳ ųșįňģ įňđěx fųňđș įș ǻŀŀ ỳǿų
ňěěđ țǿ ģěț țǿ ẅħěřě ỳǿų ňěěđ țǿ ģǿ,” Mř. Fěřřį șǻỳș. “Ǻŀŀ țħįș ǿțħěř șțųff įș ǻ ŀǿț ǿf ňǿįșě,
ǻ bįģ đįșțřǻčțįǿň. İț’ș jųșț Ẅǻŀŀ Șțřěěț țřỳįňģ țǿ ģěț ỳǿų țǿ pųț ỳǿųř mǿňěỳ įňțǿ ěxpěňșįvě
přǿđųčțș.”
İň řěčěňț ỳěǻřș, țħě ŀįșț ǿf ǻŀțěřňǻțįvě ǻșșěț čŀǻșșěș ǻňđ șțřǻțěģįěș țħǻț ǻřě ǻččěșșįbŀě țǿ
įňđįvįđųǻŀ įňvěșțǿřș ħǻș ģřǿẅň. İň țħě ẅǻķě ǿf 2008, mǻňỳ įňvěșțǿřș běģǻň đǻbbŀįňģ įň
ǻșșěțș ǻșįđě fřǿm șțǿčķș ǻňđ bǿňđș. Șǿmě ǻđđěđ pǿșįțįǿňș įň řěǻŀ-ěșțǻțě įňvěșțměňț
țřųșțș ǻňđ čǿmmǿđįțįěș țǿ ģųǻřđ ǻģǻįňșț įňfŀǻțįǿň, ẅįțħ țħě ģřǿẅțħ ǿf ĚȚFș ǻňđ
ěxčħǻňģě-țřǻđěđ ňǿțěș mǻķįňģ įț ěǻșỳ fǿř ěvěřỳǿňě țǿ ǿẅň čǿmmǿđįțįěș.
Ǻș țħě přįčě ǿf ǿįŀ țǿǿķ ǿff, șǿmě věňțųřěđ fųřțħěř ǻfįěŀđ țǿ ěňěřģỳ MĿPș, ẅįțħ ǻ ňųmběř
ǿf fųňđș ǻňđ ĚȚFș șpěčįǻŀįżįňģ įň țħįș ǻřěǻ.
Mǿřě řěčěňțŀỳ, ǻ ģřǿẅįňģ ňųmběř ħǻvě jųmpěđ įňțǿ șǿ-čǻŀŀěđ ŀįqųįđ-ǻŀțěřňǻțįvě mųțųǻŀ
fųňđș, mǻňỳ ǿf ẅħįčħ ǻįm țǿ mįmįč țħě șțřǻțěģįěș ǿf ħěđģě fųňđș, ẅħįčħ ǻřě přįmǻřįŀỳ
ǻvǻįŀǻbŀě țǿ ħįģħ-ňěț-ẅǿřțħ ǻňđ įňșțįțųțįǿňǻŀ įňvěșțǿřș. Ǻččǿřđįňģ țǿ Mǿřňįňģșțǻř,
mųțųǻŀ fųňđș ųșįňģ șțřǻțěģįěș įňčŀųđįňģ ŀǿňģ/șħǿřț ěqųįțỳ, mǻřķěț ňěųțřǻŀ, ǻňđ mųŀțįpŀě
ǻŀțěřňǻțįvě ǻppřǿǻčħěș įň ǻ șįňģŀě pǿřțfǿŀįǿ ħěŀđ ǻbǿųț $154 bįŀŀįǿň įň ǻșșěțș ǻș ǿf ỳěǻř-
ěňđ 2014, ųp fřǿm ǻppřǿxįmǻțěŀỳ $35 bįŀŀįǿň ǻț țħě ěňđ ǿf 2008.
(Ŀǿňģ/șħǿřț fųňđș běț ǿň șǿmě șțǿčķș țǿ ģǿ ųp įň přįčě ǻňđ ǿțħěřș țǿ fǻŀŀ. Ẅįțħ mǻřķěț-
ňěųțřǻŀ ǻppřǿǻčħěș, țħǿșě ŀǿňģ ǻňđ șħǿřț běțș ǻřě bǻŀǻňčěđ țǿ ŀǻřģěŀỳ ěŀįmįňǻțě ǻňỳ
ěffěčț ǿň fųňđ řěțųřňș fřǿm țħě břǿǻđ mǻřķěț’ș đįřěčțįǿň.)
Ẅħįŀě įňvěșțǿřș șħǿųŀđň’ț mǻķě đěčįșįǿňș bǻșěđ ǿň țħě șħǿřț-țěřm pěřfǿřmǻňčě ǿf ǻňỳ
įňvěșțměňț ǿř fųňđ čǻțěģǿřỳ, fǿř mǻňỳ ŀįqųįđ-ǻŀțěřňǻțįvě fųňđș—ǻbǿųț ħǻŀf ǿf ẅħįčħ
ŀǻčķ țħřěě-ỳěǻř țřǻčķ řěčǿřđș, ǻččǿřđįňģ țǿ Mǿřňįňģșțǻř—țħě pǻșț čǿųpŀě ǿf mǿňțħș
ħǻvě běěň ǻň įmpǿřțǻňț țěșț ǿf țħěįř čŀǻįmș țǿ přǿvįđě đǿẅňșįđě přǿțěčțįǿň.
Șǿmě șǻỳ țħǻț, ǻș ǻ ģřǿųp, țħě ŀįqųįđ-ǻŀțěřňǻțįvě fųňđș ħǻvě đǿňě ẅħǻț țħěỳ ǻřě
șųppǿșěđ țǿ đǿ ẅħěň șțǿčķș țųmbŀě. “Țħěỳ șħǿųŀđ ħěŀp mųțě țħě đǿẅňșįđě bųț ňǿț
čǿmpŀěțěŀỳ přǿțěčț ǻģǻįňșț įț,” șǻỳș Jǿșħ Čħǻřŀșǿň, đįřěčțǿř ǿf ǻŀțěřňǻțįvě-șțřǻțěģįěș
řěșěǻřčħ ǻț Mǿřňįňģșțǻř.
Ŀįqųįđ-ǻŀțěřňǻțįvě mųțųǻŀ fųňđș ǻřěň’ț įňțěňđěđ țǿ přǿvįđě “ǻ čǿmpŀěțě șǻfěțỳ ňěț

đųřįňģ mǻřķěț čǿřřěčțįǿňș ǿř čřǻșħěș,” įň pǻřț běčǻųșě țħěỳ țỳpįčǻŀŀỳ ħǻvě șǿmě
ěxpǿșųřě țǿ șțǿčķș, ħě șǻỳș. Bỳ čǿňțřǻșț, “įň ǻňỳ ķįňđ ǿf fįňǻňčįǻŀ čřįșįș, pǻřțįčųŀǻřŀỳ
įňvǿŀvįňģ țħě ģŀǿbǻŀ mǻřķěțș, Ų.Ș. įňvěșțměňț-ģřǻđě bǿňđș ǻřě ǻŀẅǻỳș ģǿįňģ țǿ bě ǻ
ħǻvěň.”
Țħě čǻțěģǿřỳ ǿf ŀǿňģ/șħǿřț fųňđș—ẅħįčħ ǻřě ģěňěřǻŀŀỳ ěxpěčțěđ țǿ ŀǿșě ŀěșș țħǻň țħě
mǻřķěț įň ǻ đǿẅňțųřň—đěčŀįňěđ bỳ 6.4% fřǿm țħě mǻřķěț țǿp țǿ Țųěșđǻỳ, věřșųș țħě
12% ŀǿșș fǿř țħě Ș&P 500, ǻččǿřđįňģ țǿ Mǿřňįňģșțǻř. Mǻřķěț-ňěųțřǻŀ fųňđș, ẅħįčħ ǻįm țǿ
mǻķě mǿňěỳ ẅħěțħěř șțǿčķș řįșě ǿř fǻŀŀ, ǻřě đǿẅň 1.7%.
Ǻmǿňģ ŀįqųįđ-ǻŀțěřňǻțįvě fųňđș, țħě țỳpě țħǻț ħǻș ħěŀđ ųp běșț įș mǻňǻģěđ-fųțųřěș
fųňđș, ẅħįčħ běț ǿň fųțųřěș čǿňțřǻčțș įň ǻ vǻřįěțỳ ǿf mǻřķěțș, įňčŀųđįňģ čųřřěňčįěș, fįxěđ
įňčǿmě, șțǿčķș ǻňđ čǿmmǿđįțįěș. Țħěỳ ǻřě ǿff 1.6%.
Ŀǻģģǻřđș ǻmǿňģ ŀįqųįđ ǻŀțěřňǻțįvěș įňčŀųđě mųŀțįǻŀțěřňǻțįvě fųňđș, ẅħįčħ ěmpŀǿỳ ǻ

vǻřįěțỳ ǿf ħěđģě-fųňđ-ŀįķě șțřǻțěģįěș, đǿẅň 4.6%.
Ŀǻșț ỳěǻř, țħě Șěčųřįțįěș ǻňđ Ěxčħǻňģě Čǿmmįșșįǿň ŀǻųňčħěđ ǻ břǿǻđ ěxǻmįňǻțįǿň ǿf
ǻŀțěřňǻțįvě mųțųǻŀ fųňđș ǻmįđ čǿňčěřňș ǻbǿųț țħěșě fųňđș’ ųșě ǿf țħįňŀỳ țřǻđěđ
șěčųřįțįěș ǻňđ bǿřřǿẅěđ mǿňěỳ. İň ǻ đǿčųměňț șpěŀŀįňģ ǿųț įțș přįǿřįțįěș fǿř
ěxǻmįňǻțįǿňș ǿf țħě fįňǻňčįǻŀ įňđųșțřỳ țħįș ỳěǻř, țħě ȘĚČ șǻįđ ǿňě fǿčųș ẅǿųŀđ bě țħě
“ŀěvěřǻģě, ŀįqųįđįțỳ ǻňđ vǻŀųǻțįǿň pǿŀįčįěș ǻňđ přǻčțįčěș” ǿf fųňđș ħǿŀđįňģ ǻŀțěřňǻțįvě
įňvěșțměňțș.
Țħįș șųmměř, țħě ȘĚČ șǿųģħț fěěđbǻčķ fřǿm țħě pųbŀįč mǿřě břǿǻđŀỳ ǻbǿųț țħě řǻpįđŀỳ
ěxpǻňđįňģ ẅǿřŀđ ǿf ěxčħǻňģě-țřǻđěđ přǿđųčțș, ǻ čǻțěģǿřỳ ųňđěř ẅħįčħ mǻňỳ ǻŀțěřňǻțįvě
ĚȚFș fǻŀŀ. “Ǻș ňěẅ přǿđųčțș ǻřě đěvěŀǿpěđ ǻňđ țħěįř čǿmpŀěxįțỳ ģřǿẅș, įț įș čřįțįčǻŀ țħǻț
ẅě ħǻvě břǿǻđ pųbŀįč įňpųț țǿ įňfǿřm ǿųř ěvǻŀųǻțįǿň ǿf ħǿẅ țħěỳ șħǿųŀđ bě ŀįșțěđ,
țřǻđěđ, ǻňđ mǻřķěțěđ țǿ įňvěșțǿřș, ěșpěčįǻŀŀỳ řěțǻįŀ įňvěșțǿřș,” ȘĚČ Čħǻįřmǻň Mǻřỳ Jǿ
Ẅħįțě șǻįđ įň ǻ řěŀěǻșě ẅħěň țħě čǿmměňț pěřįǿđ, ẅħįčħ ěňđěđ ŀǻșț ẅěěķ, ẅǻș
ǻňňǿųňčěđ įň Jųňě.
Đǻvįđ Ķųđŀǻ, fǿųňđěř ǻňđ čħįěf ěxěčųțįvě ǿf Mǻįňșțǻỳ Čǻpįțǻŀ Mǻňǻģěměňț ĿĿČ įň
Ģřǻňđ Bŀǻňč, Mįčħ., șǻỳș ħě ħǻș įňčřěǻșěđ ħįș ųșě ǿf ǻŀțěřňǻțįvěș mųțųǻŀ fųňđș țħįș ỳěǻř,
țǿ ǻș mųčħ ǻș 20% ǿf șǿmě pǿřțfǿŀįǿș fřǿm ǻřǿųňđ 2% țǿ 5% ǻț țħě șțǻřț ǿf țħě ỳěǻř. Ǿňě
ǿf țħě fųňđș ħě įș ųșįňģ įș Čǻțǻŀỳșț Mǻčřǿ Șțřǻțěģỳ, ẅħįčħ ẅǻș ųp 42% țħįș ỳěǻř țħřǿųģħ
Țħųřșđǻỳ.
Ŀǿǿķįňģ ǻț țħě řěțųřňș ǿf țħě ǻvěřǻģě mųŀțįǻŀțěřňǻțįvěș ǻňđ ŀǿňģ/șħǿřț fųňđș ǿvěř țħě
pǻșț fěẅ mǿňțħș, ħě șǻỳș țħěỳ “mįțįģǻțěđ țħě đǿẅňșįđě ǿf țħě Ș&P 500 țǿ șǿmě đěģřěě.”
Bųț ǿvěř ŀǿňģěř pěřįǿđș, ħě șǻỳș, mǻňỳ ǻŀțěřňǻțįvěș fųňđș ħǻvě đěŀįvěřěđ đįșǻppǿįňțįňģ
řěțųřňș ǻňđ “jųșț ǻřěň’ț ǻňỳ ģǿǿđ,” mǻķįňģ țħě șěŀěčțįǿň ǿf įňđįvįđųǻŀ fųňđș čřįțįčǻŀ.
—Ķǻřěň Đǻmǻțǿ čǿňțřįbųțěđ țǿ țħįș ǻřțįčŀě.
Ẅřįțě țǿ Ǻňňě Țěřģěșěň ǻț ǻňňě.țěřģěșěň@ẅșj.čǿm ǻňđ Ǻňňǻ Přįǿř ǻț

ǻňňǻ.přįǿř@ẅșj.čǿm
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Ŀěșșǿňș Fřǿm ťħě Đǿẅňťųřň ǿf ‘Ħěđģě
Ŀįťě’
İňvěșțǿřș ňěěđ țǿ ķňǿẅ ẅħǻț țħěỳ ǻřě bųỳįňģ ǻňđ įf țħěỳ ħǻvě țħě țǿŀěřǻňčě
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Bỳ ȘǺŘǺĦ ĶŘǾŲȘĚ
Ųpđǻțěđ Fěb. 8, 2016 8:52 ǻ.m. ĚȚ
Țħě řěčěňț řįșě ǻňđ fǻŀŀ įň đěmǻňđ fǿř ǻ ňěẅ břěěđ ǿf mųțųǻŀ fųňđș bįŀŀěđ ǻș “ħěđģě
fųňđș fǿř țħě mǻșșěș” ħǿŀđș șǿmě ħǻřđ-ŀěǻřňěđ ŀěșșǿňș fǿř įňđįvįđųǻŀ įňvěșțǿřș.
Fǿřmǻŀŀỳ ķňǿẅň ǻș ŀįqųįđ-ǻŀțěřňǻțįvě fųňđș, țħě přǿđųčțș įň qųěșțįǿň čǿmbįňě ħěđģě-

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fųňđ-șțỳŀě țǻčțįčș—șųčħ ǻș ųșįňģ đěřįvǻțįvěș, ŀěvěřǻģě ǻňđ șħǿřț pǿșįțįǿňș țǿ jųįčě

řěțųřňș—ẅįțħ țħě đǻįŀỳ ŀįqųįđįțỳ ǿf ǻ mųțųǻŀ fųňđ.
Pįțčħěđ bỳ fųňđ čǿmpǻňįěș ǻș ǻ ẅǻỳ țǿ șmǿǿțħ ǿųț řěțųřňș įň ǻ țǿpșỳ-țųřvỳ mǻřķěț, țħě
fųňđș ǻțțřǻčțěđ ǻ ŀǿț ǿf įňțěřěșț fřǿm įňđįvįđųǻŀ įňvěșțǿřș įň řěčěňț ỳěǻřș. Ěňțħųșįǻșm
pěǻķěđ įň 2014, ǻș $38 bįŀŀįǿň įň įňfŀǿẅș șěňț țǿțǻŀ ǻșșěțș įň ŀįqųįđ-ǻŀțěřňǻțįvě fųňđș
șǿǻřįňģ țǿ $310.3 bįŀŀįǿň, ǻččǿřđįňģ țǿ řěșěǻřčħěř Mǿřňįňģșțǻř İňč.
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Đěčįđįňģ běțẅěěň țħě țẅǿ įșň’ț ǻŀẅǻỳș șțřǻįģħțfǿřẅǻřđ. Ħěřě’ș ħěŀp čŀǻřįfỳįňģ țħě đįffěřěňčěș ǻňđ șįmįŀǻřįțįěș.
VİĚẄ İŇȚĚŘǺČȚİVĚ
Țħěň čǻmě 2015, ẅħěň șǿmě ŀįqųįđ-ǻŀțěřňǻțįvě fųňđș fǻįŀěđ țǿ ǿųțpěřfǿřm țřǻđįțįǿňǻŀ
mųțųǻŀ fųňđș đěșpįțě čǻřřỳįňģ ǻ ħěfțįěř přįčě țǻģ—1.67% ǿf ǻșșěțș ǻňňųǻŀŀỳ, ǿň ǻvěřǻģě,
věřșųș 1.22% fǿř țħě ǻvěřǻģě ǻčțįvěŀỳ mǻňǻģěđ mųțųǻŀ fųňđ, ǻččǿřđįňģ țǿ Mǿřňįňģșțǻř.
Ǻș pěřfǿřmǻňčě čǿǿŀěđ, įňvěșțǿřș pųŀŀěđ $5.6 bįŀŀįǿň fřǿm țħě fųňđș įň 2015, ǻňđ ǻ
řěčǿřđ 33 fųňđș șħųț đǿẅň, Mǿřňįňģșțǻř đǻțǻ șħǿẅ.
Șǿ ẅħǻț șħǿųŀđ įňvěșțǿřș țǻķě ǻẅǻỳ fřǿm ǻŀŀ țħįș? Fǿř țħǿșě įňțěřěșțěđ įň țħěșě čǿmpŀěx
fųňđș, ħěřě ǻřě șǿmě țħįňģș țǿ čǿňșįđěř:
Ųňđěřșťǻňđ ťħě řįșķș
Țħěřě ǻřě mǻňỳ țỳpěș ǿf ŀįqųįđ-ǻŀțěřňǻțįvě fųňđș ǻvǻįŀǻbŀě țǿđǻỳ, șǿ įňvěșțǿřș ňěěđ țǿ
ųňđěřșțǻňđ ẅħǻț țħěỳ ǻřě ģěțțįňģ ǻňđ mǻķě șųřě țħěỳ ħǻvě țħě řįșķ țǿŀěřǻňčě fǿř įț,
ǻđvįșěřș ǻňđ fųňđ đįșțřįbųțǿřș șǻỳ.
“İț’ș ǿňŀỳ ģřěǻț įf țħěỳ ķňǿẅ ẅħǻț țħěỳ’řě ŀǿǿķįňģ ǻț ǻňđ ẅħǻț țħěỳ’řě bųỳįňģ,” șǻįđ Ěřįč
Bųřŀ, ħěǻđ ǿf ģŀǿbǻŀ șǻŀěș fǿř Mǻň Ģřǿųp PĿČ įň Ňěẅ Ỳǿřķ. Ǿňě ǿf Mǻň’ș čǿmpųțěř-

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đřįvěň țřǻđįňģ ųňįțș, ǺĦĿ, ŀǻșț ỳěǻř jǿįňěđ ẅįțħ Ǻměřįčǻň Běǻčǿň Ǻđvįșǿřș ǿň ǻ
mǻňǻģěđ-fųțųřěș fųňđ, ẅħįčħ běțș ǿň fųțųřěș čǿňțřǻčțș įň ǻ ňųmběř ǿf mǻřķěțș.
Ŀįqųįđ-ǻŀțěřňǻțįvě șțřǻțěģįěș břǿǻđŀỳ įňčŀųđě fųňđș țħǻț mįx ŀǿňģ ǻňđ șħǿřț pǿșįțįǿňș,
bǿňđ fųňđș ẅįțħ fǻř-řěǻčħįňģ įňvěșțměňț řěmįțș, ǻňđ fųňđș țħǻț įňvěșț ǻčřǿșș ǻșșěț
čŀǻșșěș țǿ mįțįģǻțě țħě įmpǻčț ǿf mǻřķěț đěčŀįňěș ǿř běț ǿň měřģěř-ǻňđ-ǻčqųįșįțįǿň
ǻčțįvįțỳ.
Ǻđvįșěřș șǻỳ țħǻț běčǻųșě mǿșț ŀįqųįđ-ǻŀțěřňǻțįvě fųňđș ųșě mǿřě-čǿmpŀěx șțřǻțěģįěș
țħǻň țħě ǻvěřǻģě mųțųǻŀ fųňđ, įț’ș įmpǿřțǻňț țǿ řěșěǻřčħ ẅħǻț țỳpěș ǿf țřǻđįňģ ǻčțįvįțỳ
țǻķěș pŀǻčě ẅįțħįň țħě pǿřțfǿŀįǿ.
İňvěșțǿřș ǻŀșǿ șħǿųŀđ bě ǻẅǻřě ňǿț ǿňŀỳ ǿf ųpfřǿňț ǻňňųǻŀ fěěș, bųț ǻŀșǿ ǿf țřǻđįňģ čǿșțș
ẅįțħįň țħě fųňđș ǻňđ țħě țǻx įmpŀįčǻțįǿňș ǿf ǻňỳ șħǿřț-țěřm ģǻįňș čǻųșěđ bỳ țħě běțș
pǿřțfǿŀįǿ mǻňǻģěřș mǻķě.
Đǿň’ť ťřỳ ťǿ ‘ťįmě’ įť
Fųňđ mǻňǻģěřș ǻňđ ẅěǻŀțħ ǻđvįșěřș řěčǿmměňđ țħǻț įňvěșțǿřș ǻvǿįđ ųșįňģ ŀįqųįđ-
ǻŀțěřňǻțįvě șțřǻțěģįěș țǿ țįmě țħě mǻřķěț, ǻňđ įňșțěǻđ șěŀěčț ǻ ňųmběř ǿf đįffěřěňț
șțřǻțěģįěș țǿ șmǿǿțħ ǿųț řěțųřňș ǿvěř mǻřķěț čỳčŀěș. Mř. Bųřŀ, fǿř ěxǻmpŀě, șǻỳș
įňvěșțǿřș įň ǻ mǻňǻģěđ-fųțųřěș șțřǻțěģỳ șħǿųŀđ bě přěpǻřěđ țǿ įňvěșț ǿvěř țħřěě țǿ fįvě
ỳěǻřș.
Břįǻň Șǿmměřș, đįřěčțǿř ǿf ǻșșěț mǻňǻģěměňț ǻț ĦBĶȘ Ẅěǻŀțħ Ǻđvįșǿřș įň Ěřįě, Pǻ.,
șǻỳș ħįș fįřm ųșěș ǿňŀỳ ŀįqųįđ-ǻŀțěřňǻțįvě fųňđș șųčħ ǻș ħěđģěđ ěqųįțỳ țħǻț ħěŀp čųșħįǿň
mǻřķěț đěčŀįňěș.
“Ẅě ųțįŀįżě ŀįqųįđ ǻŀțș přěțțỳ ħěǻvįŀỳ. Ẅě ħǻvě đįșčǿvěřěđ, ħǿẅěvěř, țħǻț șǿmě ŀįqųįđ ǻŀțș
ŀįvě ųp țǿ țħěįř přǿmįșěș ǿf ųňčǿřřěŀǻțěđ řěțųřň șțřěǻmș bųț ǿțħěř ǻŀț čǻțěģǿřįěș đǿ ňǿț,”
ħě șǻįđ įň ǻň ěmǻįŀ.
ǺQŘ Čǻpįțǻŀ Mǻňǻģěměňț ĿĿČ, ǿňě ǿf șěvěřǻŀ ħěđģě-fųňđ fįřmș țħǻț ǿffěřș ŀįqųįđ-
ǻŀțěřňǻțįvě fųňđș, ħǿŀđș ǻňňųǻŀ “ǺQŘ Ųňįvěřșįțỳ” ěđųčǻțįǿň șěșșįǿňș fǿř fįňǻňčįǻŀ
ǻđvįșěřș ǻț țħě Ųňįvěřșįțỳ ǿf Čħįčǻģǿ.
Țħě fįřm ǻŀșǿ ħǻș ħįģħ įňvěșțměňț mįňįmųmș, țǻřģěțįňģ mǿřě-șǿpħįșțįčǻțěđ įňvěșțǿřș.
Fǿř șǿmě șțřǻțěģįěș, țħě fįřm řěqųįřěș ǻ $1 mįŀŀįǿň mįňįmųm įňvěșțměňț ųňŀěșș
įňđįvįđųǻŀș įňvěșț țħřǿųģħ ǻň ǻđvįșěř.
Čǿmpŀįčǻțįňģ țħě ħųňț fǿř țħě řįģħț ŀįqųįđ-ǻŀțěřňǻțįvěș fųňđ įș ǻ ŀǻčķ ǿf țřǻčķ řěčǿřđș fǿř
mǻňỳ přǿđųčțș. Mǿřňįňģșțǻř ǻňǻŀỳșțș șǻįđ įň ǻ Jǻňųǻřỳ řěșěǻřčħ ňǿțě țħǻț ǿňŀỳ ħǻŀf ǿf
ŀįqųįđ-ǻŀțěřňǻțįvě fųňđș ħǻvě țřǻčķ řěčǿřđș ǿf ǻț ŀěǻșț țħřěě ỳěǻřș ǻňđ ǿňŀỳ ǻ qųǻřțěř
ħǻvě běěň ǻřǿųňđ fǿř ǻț ŀěǻșț fįvě ỳěǻřș. Țħǻț čǻň mǻķě įț ħǻřđ fǿř įňvěșțǿřș țǿ ģěț ǻ řěǻđ
ǿň ħǿẅ đįffěřěňț fųňđș běħǻvě įň đįffěřěňț mǻřķěț ěňvįřǿňměňțș.
Jǻșǿň Ķěpħǻřț, ǻň ǻňǻŀỳșț ǻț Mǿřňįňģșțǻř, șǻỳș ẅįțħ ŀįqųįđ ǻŀțěřňǻțįvěș įňvěșțǿřș ģěț ǻ
ŀǿț ǿf “mǻňǻģěř řįșķ”—měǻňįňģ țħěřě ǻřě ŀǻřģě đįffěřěňčěș įň pěřfǿřmǻňčě ěvěň ẅįțħįň
țħě șǻmě șțřǻțěģįěș.
“Ẅě ħǻđ țħě fįřșț đįffįčųŀț mǻřķěț ěňvįřǿňměňț șįňčě ŀįqųįđ ǻŀțěřňǻțįvěș ģǿț pǿpųŀǻř,
ǻňđ ỳǿų’řě șěěįňģ ǻ đįvěřģěňčě běțẅěěň țħě ẅįňňěřș ǻňđ ŀǿșěřș įň țħě șpǻčě,” ħě șǻỳș ǿf
2015.
Țħě ǻvěřǻģě ŀįqųįđ-ǻŀțěřňǻțįvě fųňđ ŀǿșț 1.48% įň 2015 ǻfțěř řěțųřňįňģ 1.4% įň 2014. Țħě
ĦFŘİ Fųňđ Ẅěįģħțěđ Čǿmpǿșįțě İňđěx, ẅħįčħ șħǿẅș țħě pěřfǿřmǻňčě ǿf țħě ǻvěřǻģě
ħěđģě fųňđ, fěŀŀ 0.85% įň 2015.
Đįvěřșįfįčǻťįǿň įș ķěỳ
Čħřįșțįňě Jǿħňșǿň, ħěǻđ ǿf ǺŀŀįǻňčěBěřňșțěįň’ș ǻŀțěřňǻțįvěș přǿđųčț mǻňǻģěměňț, șǻỳș

țħǻț ẅħěň įňșțįțųțįǿňǻŀ įňvěșțǿřș ģǿț įňțǿ ħěđģě fųňđș įň țħě 1990ș, țħěỳ įňvěșțěđ ǻčřǿșș
ǻ ňųmběř ǿf đįffěřěňț șțřǻțěģįěș. İňđįvįđųǻŀ įňvěșțǿřș “đįđ țħě ěxǻčț ǿppǿșįțě” įň 2008
ǻňđ 2009, șħě șǻỳș. Șǿ ẅħěň ǿňě șțřǻțěģỳ đįđň’ț pǻỳ ǿff, mǻňỳ pųŀŀěđ țħěįř mǿňěỳ.

“Ǿųř fįřșț ŀěșșǿň ẅǿųŀđ bě ģǿ įňțǿ țħįș įň ǻ đįvěřșįfįěđ ẅǻỳ ǻňđ șěŀěčț ǻ mǻňǻģěř țħǻț ħǻș
ěxpěřįěňčě,” Mș. Jǿħňșǿň șǻỳș.
35(9,286&29(5$*(
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Ǻđvįșěřș șǻỳ įňvěșțǿřș șħǿųŀđ čǿňșįđěř ǻŀŀǿčǻțįňģ 5% țǿ 20% ǿf țħěįř pǿřțfǿŀįǿ țǿ

ǻŀțěřňǻțįvě șțřǻțěģįěș ǻňđ șpřěǻđ țħě mǿňěỳ ǻčřǿșș đįffěřěňț fųňđș ǻňđ mǻňǻģěřș.
Ǻňǿțħěř čǿňșįđěřǻțįǿň įș ẅħěțħěř șțřǻțěģįěș șųčħ ǻș ěqųįțỳ ŀǿňģ/șħǿřț ǿř ųňčǿňșțřǻįňěđ

bǿňđ įňvěșțįňģ șħǿųŀđ șįț ẅįțħįň ǻň “ǻŀțěřňǻțįvě” pǿřțįǿň ǿf ǻ pǿřțfǿŀįǿ ǿř řěpřěșěňț ǻ
șŀįčě ǿf ǻ șțǿčķ ǿř bǿňđ ǻŀŀǿčǻțįǿň.
Ǻňǻŀỳșțș ǻňđ ǻđvįșěřș ňǿțě țħǻț țħěșě fųňđș ǻřě șųppǿșěđ țǿ běħǻvě đįffěřěňțŀỳ țħǻň țħě
břǿǻđěř șțǿčķ ǿř bǿňđ mǻřķěț, ẅħįčħ měǻňș pěřfǿřmǻňčě čǻň bě ěxțřěměŀỳ běțțěř ǿř
ẅǿřșě țħǻň țỳpįčǻŀ mųțųǻŀ fųňđș.
Řǿňěň İșřǻěŀ, ǻ přįňčįpǻŀ ǻț ǺQŘ, șǻỳș țħě ķěỳ țǿ șěŀěčțįňģ ŀįqųįđ-ǻŀțěřňǻțįvě fųňđș įș țǿ
pįčķ ǻ șțřǻțěģỳ țħǻț đěŀįvěřș řěțųřňș țħǻț ǻřěň’ț čǿřřěŀǻțěđ ẅįțħ țħě pěřfǿřmǻňčě ǿf
țřǻđįțįǿňǻŀ ěqųįțỳ ǿř bǿňđ mǻřķěțș.
“İț čǿųŀđ mǻķě ģǿǿđ mǿňěỳ įň ǻ bǻđ mǻřķěț ǿř ǻ bǻđ řěțųřň įň ǻ ģǿǿđ mǻřķěț,” ħě șǻỳș ǿf
ħįș fįřm’ș fųňđș.
Mș. Ķřǿųșě įș ǻ Ẅǻŀŀ Șțřěěț Jǿųřňǻŀ řěpǿřțěř įň Ňěẅ Ỳǿřķ. Ěmǻįŀ ħěř ǻț
șǻřǻħ.ķřǿųșě@ẅșj.čǿm.
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5/30/2016 Liquid alternative mutual funds leave investors disappointed FT.com
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May 22, 2016 9:08 pm
Liquid alternative mutual funds leave investors

disappointed
Stephen Foley and Mary Childs in New York
 Share   Author alerts  Print  Clip  Gift Article  Comments
©Bloomberg
The asset management industry’s hopes of bringing hedge fund

strategies to the American mass market have stalled in the face of miserable returns and scepticism
from investors.
Assets in socalled liquid alternative mutual funds in the US, which doubled between 2011 and 2014,
have stagnated for two years, and new data show that the average fund lost money, regardless of
whether the sector is measured over one, three, five or 10 years.
http://www.ft.com/intl/cms/s/0/a485f82e1d1811e6a7bcee846770ec15.html#axzz4AAAFB9bt 1/4
The scale of the disappointment has become apparent because Morningstar, the research group
tracking mutual funds, began categorising liquid alts funds separately from some bond funds this
month.
Liquid alts attempt to replicate some hedge fund strategies, such as equity longshort trading or
momentum trading through managed futures, or to provide retail investors access to multiple
underlying managers through a “fund of hedge funds” structure.
The difference is that mutual funds are open to the general public and investors can take out their
money at any time.
“It is hard to generalise across hundreds and hundreds of funds, but it is clear that they have made
poor allocations to various strategies,” said Josh Charlson, analyst at Morningstar. “Then you have
high fees on top of that which cut into the already low return environment. Investors would have
been better in a plain old 6040 balanced fund [of stocks and bonds].”
The amount of money in liquid alts mutual funds in the US rose from $85bn five years ago to peak
at $183bn in August 2014, according to Morningstar. The pitch to American savers was that hedge
fundlike vehicles could boost returns, add diversification and cut the risks of a portfolio, a pitch
that resonated because stocks and bonds both looked expensive compared to historical averages.
Meanwhile, some in the hedge fund industry saw an opportunity to gather additional assets from
retail investors, while traditional fund managers used hedge fundlike strategies to broaden their
product offering.
Liquid alts returns have proved disappointing Assets had fallen to $175bn by the end of last
month, but losses have not led to sustained
Average Average Average
outflows to date, and the number of liquid alts
Category 1year 3year 5year
funds continues to grow, as fund managers
return return return
stake out territory in case of a revival.
Bear Market 2.69 17.23 17.81
LongShort There are 1,345 such funds tracked by

4.65 2.77 2.97
Equity Morningstar in the US this year, of which more
than 100 were launched in the past 12 months,
Managed
4.00 1.38 1.67 and more than 500 within the past three years.
Futures
In Europe, liquid alts using the Ucits structure
Multialternative 4.46 0.49 1.35
are continuing to expand.
Multicurrency 1.22 0.91 1.42
Market Neutral 0.01 0.79 1.09 Richard Chilton, whose hedge fund
management firm Chilton Investment
LongShort
3.56 0.38 3.09 Company runs money in several liquid alts
Credit
funds, said that the products would be “a very
Option Writing 1.84 3.18 4.27 important arrow in the quiver” for retail
ALL FUNDS 3.42 0.45 1.49 investors and retirement savers in case of a
market downturn like 2008.

HFR hedge
3.84 2.27 1.72 “We are going through a learning curve right
fund index
now but it is going to get there,” he said at the
S&P 500 total
1.20 11.26 11.02 Salt investment conference last week.
return index
Barclays Agg There have been highprofile closures,

2.72 2.29 3.60
bond index however. Blackstone, the world’s biggest
Source: Morningstar manager of alternative investments from
private equity to real estate, is shutting its
mutual fund after one of its biggest backers,
Fidelity Investments, pulled out. The Blackstone Alternative MultiManager Fund, which was
started in August 2013 as a dedicated vehicle for Fidelity, will be liquidated by the end of this
month.
Excluding the small number of socalled bear market funds, which are designed as a hedge against a
falling stock market and have suffered big losses during the bull market, managed futures and
multicurrency funds have been the worstperforming US liquid alts funds on average over the past
five years, down 1.7 per cent and 1.4 per cent, respectively.
The largest category by assets, multialternative funds, which offer a mix of hedge fund strategies,
returned 1.35 per cent annually, on average.
The S&P 500 had an annualised total return of 11 per cent over the same period and the bond
market, as measured by the Barclays US Aggregate index, returned 3.6 per cent.
Liquid alts have also underperformed the hedge fund industry over three and five years, at a time
when institutional investors and wealthy investors are questioning the value of hedge funds
themselves.
One reason for the underperformance may be that, because savers can pull their money out at any
time, mutual funds are legally required to limit their leverage and their investments in illiquid
instruments. Some hedge fund strategies therefore cannot be replicated in liquid alt form.
“The problem with a lot of funds is that when they try to replicate less liquid strategies, they only
invest in the liquid part of the portfolio, so they miss some of the inefficiencies that the regular
hedge fund strategy has,” said Don Steinbrugge, managing partner of hedge fund consultant
Agecroft Partners.
RELATED TOPICS Hedge funds, United States of America
Printed from: http://www.ft.com/cms/s/0/a485f82e1d1811e6a7bcee846770ec15.html
2/6/2017 Print
ETF Specialist
Most Liquid Alternatives ETFs Have Failed to Make the Grade

By Ben Johnson, CFA | 020117 | 06:00 AM | Email Article
A version of this article was published in the January 2017 issue of Morningstar
ETFInvestor. Download a complimentary copy of ETFInvestor here.
On paper, liquid alternatives exchangetraded funds appear to be full of promise.

They represent the pairing of asset classes or strategies that provide uncorrelated
returns with an investment vehicle that is cheap, transparent, and liquid. Here, I'll
explore the paper case for liquid alternatives ETFs and the realworld results these
funds have produced.
A Magic Asset Class

Investors have long sought a magic asset class, one that might diversify their stock
and bond risk while providing positive returns. Through the years, many different
assets and strategies have been deemed to hold such charm (REITs, commodities,
longshort equity, merger arbitrage, and so on). Most have subsequently seen their
powers chased away by diver sifying hordes, go missing for extended periods, or be
debunked by academics and practitioners. Nonetheless, our belief in magic will
persist indefinitely.
One of the more recent manifestations of the pursuit of a magic asset class is the
proliferation of liquid alternatives strategies that we have witnessed in the years
following the financial crisis. In the depths of the drawdown, correlations between
stocks and bonds spiked. During the period from Lehman Brothers' bankruptcy
filing in September 2008 to the market's nadir in March 2009, the correlation
between Vanguard Total Stock Market ETF (VTI) and Vanguard Total Bond
Market ETF (BND) approached 1. Many shellshocked investors emerged from this
experience questioning the value of diversification (which seems to die more often
than Tom Cruise's character from "The Edge of Tomorrow") and once again hoping
to conjure some assetclass magic. As always, the assetmanagement industry was
quick to get on the case, and a bevy of new liquid alternatives funds was born.
Cheaper, More Transparent, More Liquid

This new breed of liquid alternatives funds has aimed to improve upon prior
generations. Fees are one area in which this class of funds is inarguably better than
options such as hedge funds or commodity trading advisors. The classic 2and20
model has become a tough sale for a majority of hedge fund managers who lack
the record to warrant such a fee arrangement. (Some have argued hedge funds are
simply a compensation scheme masquerading as an asset class.) Transparency is
also an area where liquid alternatives mutual funds and ETFs have an edge over
hedge funds. Investors' demand to know what they own has increased substantially
in the postcrisis period as many seemingly "safe" funds—even money market funds
—experienced catastrophic meltdowns in the midst of the market malaise. Last,
daily liquidity is what puts the "liquid" in liquid alternatives. Many hedge fund
investors tried to run for the exits at the bottom of the bear market only to find the
doors nailed shut. The gates and lockups that had once lent these funds an air of
exclusivity became—in some cases—a guarantee of permanent capital impairment.
Do We Have a Match?
In theory, the marriage of an asset class or strategy with magical diversification
properties and an investment wrapper that is lowcost, taxefficient, and trades on
http://news.morningstar.com/articlenet/HtmlTemplate/PrintArticle.htm?time=6452345 1/5
2/6/2017 Print
an intraday basis would make for a postcrisis Hollywood ending. The reality hasn't
been quite so rosy.
Since March 2009, 23 exchangetraded products have been introduced in the bear
market, longshort equity, managed futures, market neutral, and multialternative
Morningstar Categories. Each represents an attempt at making the type of love
connection I described above. Here I'll take a closer look at 14 of these ETPs for
which we have at least three years of performance data to see how they stack up.
Making the Grade

Remember, the holy grail is an asset class or strategy that has low correlations
with other major asset classes and positive returns. Falling short on either front
will not suffice. Exhibit 1 shows summary data for each of the 14 ETPs under
examination. The "Correlation to Stocks" column measures the ETP's correlation to
iShares Core S&P 500 (IVV) during the trailing three and fiveyear periods
ended Dec. 31, 2016. The "Correlation to Bonds" column measures the ETP's
correlation to iShares Core US Aggregate Bond AGG&TimeFrame=YTD">
(AGG">AGG) during those same timeframes. I've also included total return and
maximum drawdown figures.
2/6/2017 Print
Exhibit 2 is a report card of sorts (the type you wouldn't want to bring home to
mom). Remember, to have the potential to add value in the context of a
stock/bond portfolio, an allocation to an alternative strategy must have low
correlations to the other pieces of the portfolio and positive returns. In grading
these funds, I used a correlation of 0.50 to IVV as my dividing line. ETPs with a
threeyear correlation to IVV less than 0.50 passed; those with a correlation
greater than 0.50 got a failing grade. As for returns, I used bonds as my
benchmark. ETPs that posted threeyear total returns that exceeded AGG's passed,
and those that fell short received an F.
Just one of the 14 ETPs examined here managed to pass this test based on its
performance during the past three years: IQ Merger Arbitrage ETF (MNA).
To be fair, three years is a very short period; we don't have a lot of data. To be
fairer still, the past three years have been fairly tame. We haven't experienced the
type of gutwrenching drawdowns or volatility that these strategies were designed
for. However, just to be sure I wasn't grading too harshly, I peeked over the fence
to see how these ETPs' actively managed mutual fund peers (note that the two
AdvisorShares ETFs and the PowerShares ETF are actively managed) have scored
using these same criteria. Specifically, I looked at the lineup of Morningstar
Medalists (funds that have been awarded a Morningstar Analyst Rating of Gold,
Silver, or Bronze) in the same five categories. Interestingly, five of the 18 actively
2/6/2017 Print
managed mutual funds made the grade. This can be partly attributed to selection
bias: I looked exclusively at the medalists, our picks for bestofbreed in these
categories. But I believe part of it also speaks to the value of employing a capable
and experienced active manager to implement these sorts of strategies.
There Are Rules

Eleven of the 14 ETPs I've examined here are index funds. Index funds generally
have the benefit of being lowcost, transparent, and taxefficient. But they also, by
definition, must play by a set of rules: specifically, an index methodology. Deriving
an index that mimics the returns of a universe of hedge funds is easy. Coming up
with one that will continue to demonstrate the same characteristics it showed in a
backtest is hard. In my mind, an indexbased approach to repli cating these
strategies is likely to prove too hamfisted to be useful. This is an area where, in
my opinion, an actively managed fund is probably your best option.
My Favorites
Within our universe of rated liquid alternatives strategies, I have three favorites,
all of which passed my test with flying colors. Below, I've summarized our analysts'
opinion of each of them. Please note that these funds might be out of reach as they
are either closed to new investors, accessible only through an advisor or 401(k)
plan, or have high minimum investment requirements.
AQR MultiStrategy Alternative (ASAIX); Bronze Rating

AQR MultiStrategy Alternative provides exposure to more than 60 "alternative
betas" grouped into nine distinct strategies (for example, currency carry, merger
spreads, value, and momentum factors). The fund maintains roughly equal risk
allocations to its constituent strategies, with a 20% leeway up or down depending
on the investment committee's conviction level. This leads to two significant
consequences. For one, the fund takes a contrarian approach, as its riskbased
equalallocation mandate causes it to lighten up on outperforming strategies. In
addition, sticking to this objective restricts capacity because it maintains consistent
allocations to capacityconstrained substrategies (for example, arbitrage
strategies). Both of these consequences ultimately benefit current investors with
greater diversification.
AQR Style Premia Alternative (QSPIX); Silver Rating

This strategy targets four wellestablished investment factors, also known as risk
or style premiums (value, momentum, carry, and defensive). Each of the four
factors is rooted in academic research, much of which has been conducted by
AQR's principals and has historically generated longterm returns that have
outpaced marketcapweighted indexes. As those factors have become more well
known, they are less likely to have as strong riskadjusted returns going forward
as they have historically. This portfolio's diversification across the factors, which
have a low correlation to one another and across asset classes, should lead to
more robust performance than any of the factors or asset classes on their own.
Vanguard Market Neutral (VMNIX); Silver Rating

Funds in the marketneutral category make matching bets on long and short equity
positions to isolate a manager's skill in picking stocks without taking on the overall
market's risk. Vanguard's quantitative equity team takes a slightly different
approach. Instead of pitting single stocks versus each other, the team's systematic
process leads to bets on groups of stocks that score well on five factors—valuation,
growth, quality, momentum, and management decisions (such as stock buybacks)
—relative to industry peers. The process is designed to discover stocks within an
industry that can grow earnings faster than peers but are trading at a discount. The
short positions are the stocks that score poorest on the five factors. The long and
2/6/2017 Print
short positions are balanced equally across each industry, and across company
size, which has led to virtually no correlation to the S&P 500 since 2010, when
Vanguard took over sole management of the fund.
Tayfun Icten and Jason Kephart contributed to this article.
Disclosure: Morningstar, Inc. licenses indexes to financial institutions as the

tracking indexes for investable products, such as exchangetraded funds, sponsored
by the financial institution. The license fee for such use is paid by the sponsoring
financial institution based mainly on the total assets of the investable product.
Please click here for a list of investable products that track or have tracked a
Morningstar index. Neither Morningstar, Inc. nor its investment management
division markets, sells, or makes any representations regarding the advisability of
investing in any investable product that tracks a Morningstar index.
Ben Johnson, CFA, is director of global ETF research for Morningstar and editor of Morningstar
ETFInvestor, a monthly newsletter.
7/16/2018 Death Is a Way of Life for Liquid Alternatives
FUND SPY
Death Is a Way of Life for Liquid Alternatives
Jason Kephart, CFA  Kathryn Wing 
16 Jul 2018
It wasn't long ago that liquid alternatives were hip, cool, and fresh options to protect a portfolio
from the next big market crash. About one third of liquid alternatives funds that existed at some
point during the past five years didn't make it that far, though.
While alternative strategies may indeed help stabilize portfolios in the next bear market,
whenever it happens, investor interest in these potentially diversifying strategies has cooled off.
Exhibit 1 shows the annual organic growth rates for funds in Morningstar's broad alternatives
category.
If you removed a small handful of firms like AQR, Blackstone, and J.P. Morgan, which are raking
in cash, the growth rates over the past three years would in fact turn decidedly negative. In 2016,
for example, AQR's alternative strategies gathered $9.6 billion of net inflows; the rest of the liquid
alternatives funds had combined net withdrawals of $6.8 billion.
https://www.morningstar.com/articles/872638/death-is-a-way-of-life-for-liquid-alternatives.html 1/4
Source: Morningstar Direct. The 2018 figure is the trailing 12-month organic growth rate as of 05-
31-2018.
Asset-management firms seem loath to stick around and see if investors will come back. Exhibit 2
shows the 10 Morningstar Categories with the highest rate of obsolete funds over the five years
ended May 31, 2018. To find the percentage of obsolete funds, we looked at total unique funds
that existed over the period in each category and the number of unique funds that were
liquidated or merged away over the period. We excluded categories with less than 50 total
unique funds during the period.
The four categories with the highest rate of fund deaths over the five years fell under the liquid
alternatives umbrella. Basically, if you blindly bought a managed-futures, multialternative, long-
short equity, or market-neutral fund over the past five years, there's about a 33% chance the fund
no longer exists. That's a crummy track record for the fund companies launching these products.
Sure, the past five years have been a tough environment to diversify away from traditional equity
and fixed income, but these numbers do not suggest firms were launching these products with
high conviction in their long-term success. A "throw everything at the wall and see what sticks"
approach seems to have been more en vogue.
Investors can face significant costs when a fund closes or is merged away. They may be forced to
sell and lock in losses, or they may be on the hook for taxes tied to embedded capital gains.
Funds that are merged into other funds, rather than liquidated, avoid those costs, but investors
may find themselves in a fund that no longer meets their objectives; this risk is heightened in
liquid alts because companies don't typically have many similar options available. Due-diligence
costs for finding a replacement fund or evaluating the acquiring fund are not trivial either.
Moreover, there aren't passive replacements investors can use to keep their asset allocation in
check while looking for another, say, long-short equity fund. So, if you don't have a ready backup,
it may throw your long-term strategic asset allocation off.
Picking Funds More Likely to Survive

In 2017, Morningstar's quantitative team published an exhaustive paper looking at which factors
put funds most at risk of closing. We won't rehash all the points in this article, but there were
some findings particularly relevant to liquid alternatives.
First, the bad news. A couple of the findings point to a continuation of high closing rates among
liquid alternatives funds. Our research showed that funds in categories with historically high
rates of closings were more likely to close in the future. The research also found that small and
slow-growing funds were more likely to close. We already covered the slowing growth above, but
size is also a struggle for a lot of liquid alternative funds. In the long-short equity category, for
example, 74 of the 115 distinct funds had less than $100 million in assets as of June 30, 2018.
There's nothing magic about $100 million in assets, but with less than that, revenue streams can
be thin compared with the costs of running and marketing a mutual fund, even with liquid
alternatives' bloated expense ratios.
One thing investors can do to improve their odds of choosing a fund that is going to be around for
the long term is to look for firms that have historically been good stewards of investor capital. The
Parent rating, one of the five pillars we use to assign our forward-looking Morningstar Analyst
Ratings, includes an assessment of a firm's management of its fund lineup. We don't like to see
firms launch products willy-nilly to capture the latest trend. Instead, new fund launches should
fall within a firm's area of investment expertise. This increases the chances they will stick with
the strategy over the long term.
After all, it's hard to invest for the long term when the funds you're using are short-lived. Fund
companies could serve investors better by sticking to strategies they believe have a good chance
of success. For investors seeking strategies that could offer greater diversification, it would
behoove them to stick to more-proven asset-management firms.
7/27/2021 Liquid Alternatives Funds: Is There Any Hope? | Morningstar
REKENTHALER REPORT
Liquid Alternatives Funds: Is There Any Hope?

Considering the future of a fund-industry flop.
John Rekenthaler
Jul 22, 2021
Mentioned: Vanguard Market Neutral I (VMNIX),

BlackRock Global Long/Short Equity Instl (BDMIX), JPMorgan Hedged Equity I (JHEQX),
Abbey Capital Futures Strategy I (ABYIX), American Beacon AHL Mgd Futs Strat Inv (AHLPX)
Square One
Let’s define terms. “Liquid alternatives” funds are publicly available
investments, typically mutual funds and exchange-traded funds. They are
“liquid” because they may be traded more frequently than their forebearers,
hedge funds, and they are “alternative” because they invest atypically, acting
like neither stocks nor bonds.
These are the seven liquid alternatives Morningstar Categories:
https://www.morningstar.com/articles/1049091/liquid-alternatives-funds-is-there-any-hope 1/6
• Equity Market Neutral

• Event Driven
• Macro Trading
• Multistrategy
• Options Trading
• Relative Value Arbitrage
• Systematic Trend
Almost all liquid alternatives funds are new, created after the 2008 global
financial crisis. They were, quite literally, an afterthought--a reaction to the
stock market’s tumble. The pitch: These funds would protect everyday
investors’ portfolios, just as hedge funds did for institutions and wealthy
individuals.
Protect they did--from investment profits. During the 2010s, liquid alternatives
funds averaged an annualized gain of 1.66%, which placed them behind every
fund category save for a few specialty groups, such as energy, precious
metals, and Latin American stock funds, and three flavors of short-term bond
funds. The results weren’t disastrous, but neither did they justify such funds’
existence.
Stocks trading below Morningstar's fair market

value
The market environment provides no excuse. True, the stock-market boom hurt
the relative performance for liquid alternatives. But relative returns are not the
issue. That a hedge lagged during a bull market is both understandable and
acceptable. The concern lies when the hedged investment trails high-quality
bonds, as has been the case with liquid alternatives funds. In that case, why
bother with trickery? You could just hold Treasuries instead.
The Performance Problem

Liquid alternative funds can’t ride investment tailwinds. To use the vernacular,
stocks and bonds have betas. (Textbooks define beta as an investment
statistic, but in practice investment professionals generally use the word to
mean "something that possesses expected returns.") Buy a basket of stocks,
and over time you should make money; ditto for bonds. Profiting from betas
requires no investment skill.
In contrast, liquid alternatives funds require insight. Take equity market-

neutral funds. For each long stock, a market-neutral fund holds a
corresponding short position. The betas cancel each other out. The fund’s
expected return is therefore 1) the interest collected from the portfolio’s cash
2) minus expenses. If the market-neutral fund is to exceed this distressingly
low hurdle, it must either cheat with its hedges, or its portfolio manager must
make more good decisions than bad.
The same principle applies to other liquid alternatives categories. Event-driven

and relative value/arbitrage funds buy and sell stocks, while macro trading,
options trading, and systematic trend funds buy other asset classes. Either
way, as with market-neutral funds, such funds play a zero-sum game. They
can’t succeed unless other investors lose. That is, they thrive only if their
managers outdo the averages.
From the Report

A recent Morningstar publication, "2021 Global Liquid Alternatives
Landscape," by Erol Alitovski, Matias Mottola, Francesco Paganelli, and Simon
Scott, highlights several other difficulties. (If you click on the link, don’t be
dismayed. Once you answer those few questions, the paper will immediately
be sent.)
1) Lineup churn. If fund companies aren’t serious about liquid alternatives

funds, then investors probably won't be, either. And fund companies have not
been serious. Of the 453 liquid alternatives funds that have been launched
since 2009, only 153 exist today. That makes for a 34% survival rate over 12.5
years. Liquid alternatives are the fund industry’s mayflies.
2) Complexity. The instability comes from both directions. One reason fund
companies have shuttered so many liquid alternatives funds is because their
investors have been fickle. Liquid alternatives are hard to own. The
elaborateness of their strategies makes them unpredictable, which tends to
upset shareholders. Losing money is one thing, but losing money
unexpectedly, without knowing why, is quite another.
3) Constraints. Liquid alternatives funds have been marketed as hedge funds

for the masses. That promise has backfired, twice. First, hedge funds have
disappointed since liquid alternatives were launched, with the 2010s
described as that industry’s "lost decade." Second, there is a catch to offering
that extra liquidity. Some hedge fund investment strategies cannot be used by
their publicly traded cousins. Liquid alternatives funds emulate hedge funds,
but they are not perfect matches.
4) Fees. Fortunately, liquid alternatives funds usually cost considerably less

than hedge funds. That is a benefit. However, they are costly by mutual fund
standards, carrying a median expense ratio of 1.66%. Yes, the same figure as
their net annualized return. For each dollar that shareholders have earned, the
fund company collects a dollar for itself. A 50/50 split. What could be fairer?
Looking Forward
None of this sounds encouraging. Nor should it. Implicitly, liquid alternatives
funds contradict passive investing. Indexers maintain that shareholders should
avoid the temptation of chasing manager "alphas," opting instead to buy dirt-
cheap betas. Without putting the matter quite so directly, liquid alternatives
funds argue the opposite. Pay more, forgo beta, and pocket those manager
alphas.
History has very firmly supported the indexers’ side of that argument.
Nevertheless, there are three current reasons for considering liquid

alternatives funds, despite their drawbacks:
1) The need for an equity hedge has increased. Better to protect against a
stock-market decline when equity valuations are at record levels than when
prices are relatively modest. When liquid alternatives funds came to the
marketplace, hedges weren’t much needed. Today, they are. Of course, as
previously mentioned, that doesn’t mean that liquid alternatives funds are the
correct hedge. But at least their function is required.
8/17/2020 Where Are the Liquid Alternative Shareholders’ Yachts? | Morningstar
FUND SPY
Where Are the Liquid Alternative Shareholders’

Yachts?
Since March 2009, investors have collectively paid $1 billion more in fees to
liquid alternative mutual funds than what they’ve gained in return.
Jason Kephart, CFA, Maciej Kowara

Aug 12, 2020
Mentioned: Marketfield I (MFLDX)
There’s an old joke about the economic imbalance between firms that provide
financial services and their investors. Upon seeing the fleet of bankers’ and
brokers’ boats in New York Harbor, a Wall Street tourist asks, “Where are all
the customer’s yachts?” Of course, those didn’t exist because the benefits of
offering financial services was greater than their wealth generation.
A lot has changed in financial services since Fred Schwed, a former broker,
first popularized this joke in 1940, and most of these changes have been in
investors’ favor. The SEC abolished fixed brokerage commissions in 1975,
opening the way for the arrival of discount brokers. Leaving investment advice
to their full-service counterparts, they started a trend of lowering trading costs
to now a fraction of their pre-1975 levels, where they exist at all anymore.
Investment shops’ management fees have also come down considerably as
index funds have enabled buy-and-hold investors to essentially match the
market for what would have been regarded as a pittance when Jack Bogle
pioneered the first retail version, beginning in 1975 as well.
Against this backdrop, liquid alternative strategies, a relative newcomer to the

industry, seem stuck in the past. Born amid the ashes of the 2008 financial
crisis from ideas drawn from hedge funds, they were supposed to bolster the
diversification of traditional stock and bond portfolios. Unfortunately, liquid
alternatives have done a better job mimicking hedge funds’ high fees than
delivering differentiated sources of return. We estimate investors collectively
paid about $21 billion in fees to liquid alternative funds between March 2009
https://www.morningstar.com/articles/997078/where-are-the-liquid-alternative-shareholders-yachts 1/6
and June 2020 while reaping only $20 billion in return. By contrast, funds
within the allocation--50% to 70% equity Morningstar Category over the same
period generated 17 times more wealth than investors paid in fees.
Liquid Alternative Fees Have Bucked the Low-Cost Trend

Investors have reaped less from liquid alts in part because they’ve paid more.
Liquid alternative funds, in other words, tend to charge a premium compared
with more-traditional strategies. For example, long-short equity funds had an
average management fee of 1.21%, as of June 30, 2020, almost double the
average 0.63% levy of actively managed U.S. large-cap equity funds.
Separating wheat from chaff? Morningstar

FundInvestor can help.
In 2019, investors paid an asset-weighted fee of 1.31% for alternative funds

according to Morningstar’s 2020 U.S. Fee Study. That figure doesn’t include
the additional costs of shorting securities, which are inherent to alternative
strategies. Leaving that aside, the fees investors paid to alternatives were
nearly double the 0.66% asset-weighted average cost of all active funds. Nor
have the fees for alternatives fallen at the same pace as other active funds
over the last five years. The exhibit below shows that the asset-weighted
average fee for all active funds declined by 14% (to 0.66% from 0.77%)
between 2015 and 2019, versus a drop of only 6% (to 1.31% from 1.39%) for
liquid alts.
The next exhibit shows the cumulative fees paid by investors and the
cumulative wealth created by liquid alternative funds from March 2009
through April 2020.[1]
- source: Morningstar Direct, author's calculations. Data as of 6/30/20.
There’s considerable irony in how investors have collectively paid $1 billion

more for liquidity alternative strategies than what they’ve gained. Although
investor interest in capital preservation played no small role in their creation
and proliferation, market downturns have been their undoing. As the
preceding exhibit shows, had it not been for the 2015-16 correction, the late
2018 drop, and the early 2020’s bear market, liquid alternatives would have
been able to outpace their fees. In March 2020, for example, the wealth
created by liquid alternative funds fell by $8 billion, or more than one third of
the $22 billion they had created to that point. Our colleagues Erol Alitovski and
Bobby Blue highlighted some of the pain points for liquid alternatives in the
first-quarter bear market.
Performance Chasing Has Also Hurt Investors’ Returns

While liquid alternative funds’ returns have been challenged, investors’ poor
timing has exacerbated the gap between the fees they’ve paid and their
returns. Consider the stampede into Mainstay Marketfield, now just
Marketfield (MFLDX), in 2013. The fund then averaged more than $1 billion of
inflows a month and grew from $4.3 billion in assets at the start of the year to
$20 billion by year-end. Subsequent performance issues led to the money
flowing right back out. Over the past decade, the fund’s negative 2.4%
investor return was well short of its 3.6% annualized time-weighted return
over the same period. That’s a whopping 6-percentage-point return gap.
The exhibit below shows Marketfield’s assets over time (bars, left axis) and the
percentage of long-short equity Morningstar Category peers it outperformed
each year (dots, right axis). It’s a classic case of performance chasing. After
three top-quartile calendar-year finishes in a row, money flooded in and assets
under management multiplied. Then money flooded out and AUM collapsed
after three finishes in or near the peer group’s bottom quartile. Few investors
thus benefited from the fund’s 2017 rebound, though they also spared
themselves from another harrowing year in 2018.
Marketfield is far from the only liquid alternative fund investors have timed
poorly and bailed on quickly. AQR’s liquid alternative funds have had a similar
boom and bust profile. Unlike Mainstay, which handled distribution for
Marketfield until 2016, AQR at least sent investors a sign to calm down by
closing their funds to new investors early. Even so, our Mind the Gap 2019
study showed that the gulf between investor and fund returns for alternative
strategies was wider than for any other asset class. Indeed, alternatives’
investors’ negative 1.44-percentage-point deficit was roughly triple the gaps in

equity and fixed-income funds.
You Win Some, You Lose Most

The past decade has been one of the best for a simple 60/40 portfolio of U.S.
stocks and bonds. Any attempt to diversify beyond that, even with non-U.S.
stocks or bonds, likely detracted from returns over the past 10 years.
One has to wonder, though, if the popularity of liquid alternative strategies

has contributed to their undoing. Edward O. Thorp, who helped pioneer many
of the quantitative approaches still used in liquid alternative strategies today,
reports that his Princeton Newport Partners fund beat the S&P 500 by nearly 5
annualized percentage points after fees between November 1969 and year-
end 1988. Thorp’s trades have since become far more crowded, and their
return potential has diminished--or disappeared entirely in some cases--which
makes overcoming high fee hurdles even more difficult. Whether or not further
study would bear that out, it’s hard to look at the last decade of liquid
alternative funds’ returns and what investors paid to get them and not
conclude that their benefits skew in favor of the offering firms.
[1] To estimate the fees investors have paid to liquid alternatives and the
wealth created by liquid alternative funds, we used the monthly assets, gross
returns, and net of fee returns of all share classes of alive and dead funds in
the long-short credit, long-short equity, market neutral, multialternative, and
options-based Morningstar Categories from March 2009 through April 2020.
By using share class level assets and returns, we can more accurately estimate
the fees paid and wealth created.
We measured the difference between the gross and net of fee returns for each
share class and multiplied that by the share classes' assets at the beginning of
the month to estimate how much investors paid each month. It should be
noted that not all of the difference between gross and net of fee returns goes
to the asset manager; a small portion may go to various intermediaries like
financial advisors.
We multiplied the net of fee returns by the share classes’ starting assets each
month to estimate the wealth created.
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6/13/2016 Hedge Fund Managers Work to Stanch Loss of Investors The New York Times
http://nyti.ms/1rknjG9
Hedge Fund Managers Work to Stanch

Loss of Investors
By ALEXANDRA STEVENSON JUNE 12, 2016
Hedge fund titans once ran their firms like elite private clubs, picking who made it
past the velvet rope and how much they would pay for access to supercharged
performance.
Years of poor performance have now led a number of funds to consider

something more like general admission.
Some bigname investors — MetLife, American International Group and the

New York City pension plan, among them — have recently begun to withdraw their
money from hedge funds in larger numbers. And the investors who stay are getting a
chance to sit at the negotiating table and dictate lower fees and better terms for
sharing in the returns that managers make.
It’s an unusual position for many hedge fund managers, who as a group are not
known for sharing well with others.
For decades, hedge funds operated on a “2 and 20” model: Investors paid fees of
2 percent of assets under management and 20 percent of any gain in any year. When
performance was good, the founders of the biggest firms were catapulted to the top
of global wealth rankings.
Now, in a bid to persuade investors to stay, some managers are sweetening the
deal by lowering fees in return for locking up investor money for a longer period of
http://www.nytimes.com/2016/06/13/business/dealbook/hedgefundmanagersworktostanchlossofinvestors.html?emc=edit_th_20160613&nl=todaysheadlin… 1/4
time and setting certain performance targets that if exceeded, investors would pay a
fee. For newcomers, managers are even offering the favorable terms once exclusively
offered to longtime loyal clients.
“Managers are having to negotiate, and investors are demanding much more
than they used to in the absence of value,” said Adam I. Taback, head of global
alternative investments at Wells Fargo Investment Institute. “High fees are like an
expensive car,” he said. “It is fine as long as you’re getting performance out of it.”
In recent years, investor criticism of hedge fund underperformance against a roaring

stock market was met with frustration by managers who complained that investors
couldn’t have their cake and eat it, too. A hedge fund manager’s job was to protect in
down years but not outperform in good years, the industry argued. But when
markets began to fall last summer, so did hedge fund returns, rendering the point
moot for many investors.
Over the last 18 months some of the bestknown managers — including William
A. Ackman of Pershing Square Capital Management and Larry Robbins of Glenview
Capital Management — have consistently lost money. Others that made bets on
macroeconomic trends were caught off guard by wrongfooted bets and had to
shutter their firms.
And many hedge fund managers found themselves crowded in the same stock.
That meant big returns as everyone piled in but even bigger declines when everyone
sold out.
Valeant Pharmaceuticals International, for example, was one of the most

popular stocks held by hedge funds in 2015, and its stock price soared to more than
$260 a share at one point. But when news of a government investigation came to
light and issues with the company’s pricing strategy became apparent, the stock
came crashing down. On Friday, Valeant’s share closed at a low of $24.
Mr. Ackman, who has been Valeant’s biggest cheerleader, has lost billions of
dollars so far on his bet on the company. His Pershing Square Holdings is down 17.5
percent so far this year through June 7, in large part because of the Valeant position.
Other hedge fund titans including Paulson & Company and Viking Global
Investors have collectively lost billions of dollars on the Valeant trade.
“I see the herd mentality among hedge funds every day,” Roslyn Zhang, a
managing director at China Investment Corporation, China’s sovereign wealth fund,
said at the SkyBridge Alternatives, or SALT, hedge fund conference in Las Vegas last
month. Describing how some funds spend “two seconds” on one theme before
deciding to put investor money behind the idea, she added: “We pay 2 and 20 for
treatment like this. I am reflecting that maybe we are not making the right decision.”
All of this has prompted some selfreflection within the industry.
“We are in the first innings of a washout in hedge funds,” Daniel S. Loeb, the
founder of the hedge fund Third Point, wrote to investors in a recent letter,
describing a “catastrophic period” for the industry.
But for some investors, acknowledgment of poor performance is not enough. In

September 2014, the nation’s biggest pension fund, the California Public Employees’
Retirement System, or Calpers, announced plans to liquidate its $4 billion hedge
fund holdings on concerns that the investments were too expensive and too
complicated. In April this year, the pension fund for New York City civil employees
voted to exit its portfolio of $1.5 billion in hedge fund investments.
Some insurance companies have shown their displeasure, too.
“We had a very negative experience in hedge funds,” Peter D. Hancock, the chief
executive of A.I.G., told investors earlier this year. The insurance group plans to pull
about half of its $11 billion in hedge fund holdings.
MetLife, another insurance giant that has roughly $1.8 billion invested in hedge
funds, has been sending out redemption requests to those managers. Steven Goulart,
its chief investment officer, recently told shareholders that the exit was prompted by
inconsistent performance. The market environment will “continue to be challenging
for hedge funds,” he added.
Investors pulled $15.1 billion from the industry in the first quarter of the year.
But these exits are a drop in the ocean compared with the $2.9 trillion the industry
manages. Other institutional investors, meanwhile, continue to pump money in.
Still, the pressure is mounting.
“Now the fact that people are willing to cut, you’re going to see pressure on
managers who are not at the top of the pyramid are going to have to cut,” said Mark
W. Yusko, the chief investment officer of Morgan Creek Capital.
In a move that is largely unheardof in the industry, Mr. Robbins recently

apologized to investors in an attempt to stem the outflow of investor money from his
firm. He pledged to “right the ship as quickly as possible” and even offered investors
the opportunity to put more money into a new fund that would waive fees.
Mr. Robbins has continued to lose money this year. Investors in his flagship
fund have lost 6.5 percent as of the end of May. So Mr. Robbins is now offering more
favorable redemption terms, allowing existing investors that add more money into
the fund to step into the shoes of investors that have left, according to three people
briefed on the firm’s plans who were not authorized to speak publicly about them.
As long as performance continues to lag, hedge funds will be scrutinized and

hedge fund giants will be at a disadvantage.
David Rubenstein the billionaire cofounder of the private equity firm Carlyle
Group, perhaps summed up the sentiment best when he told an audience of money
managers at the SALT conference in May, “Please don’t be embarrassed about the
industry.”
In case there was any hesitation, Mr. Rubenstein added: “We shouldn’t be upset
about what we do. We should be proud.”
A version of this article appears in print on June 13, 2016, on page B1 of the New York edition with the
headline: Hedge Funds Make Effort to Retain Investors.
© 2016 The New York Times Company
7/25/2018 Insurers Pull Billions From Hedge Funds - WSJ
DJIA Futures 25201 -0.05% ▼ Stoxx 600 387.68 -0.13% ▼ U.S. 10 Yr 2 32 Yield 2.943% ▲ Crude Oil 68.4
https://www.wsj.com/articles/insurers-pull-back-from-hedge-funds-1532452505
HEDGE FUNDS
Insurers Pull Billions From Hedge Funds

Wall Street money managers are having problems hanging onto insurance companies as customers
American International Group Inc. and MetLife Inc. pulled more than $700 million from hedge funds in the irst quarter. PHOTO:
BRENDAN MCDERMID REUTERS
By Mengqi Sun
July 24, 2018 1 15 p.m. ET
Wall Street money managers are having problems hanging onto insurance companies as
customers.
American International Group Inc. AIG 0.56% ▲ and MetLife Inc. MET 0.72% ▲ pulled more than
$700 million from hedge funds in the first quarter of 2018, according to filings. That followed
billions of dollars in withdrawals over the previous two years.
Net hedge-fund outflows from all U.S insurers amounted to $8.7 billion in 2016 and 2017,
according to a new report from ratings firm A.M. Best Co. Total insurance-industry assets held
https://www.wsj.com/articles/insurers-pull-back-from-hedge-funds-1532452505 1/3
7/25/2018 Insurers Pull Billions From Hedge Funds - WSJ
by hedge funds were $16.4 billion at the end of 2017, down 8.5% from the same time a year
earlier.
Six other insurers beyond AIG and MetLife also reduced their holdings in 2017, according to
A.M. Best. Twelve insurers, including Prudential Financial Inc., PRU 1.27% ▲ added to their
investments, but those inflows were collectively smaller than the industry’s outflows.
Insurers aren’t the only investors rethinking their hedge fund holdings. Clients pulled a net
$70 billion from hedge funds in 2016, according to research firm HFR, before adding back
roughly $10 billion in 2017. Through the first six months of 2018 they have pulled another $2
billion.
However, the hedge fund industry is in no danger of running out of customers: The managers
still oversee a total of $3.24 trillion, according to HFR. Hedge funds typically bet on or against
stocks, bonds or other securities, often using borrowed money and charging hefty fees.
Since the latest financial crisis, the funds have struggled to do better than low-cost, passive
investment products that track indexes such as the S&P 500.
“Many hedge funds have been challenged on the performance front and hedge funds also
attract the same capital charges as private equity and other equity products that have achieved
higher net returns,” said MetLife Chief Investment Officer Steve Goulart in an email.
A widely followed hedge-fund-returns index maintained by data-research company HFR

dropped 0.45% in June, according to a report released last week. That pulled down the
industry’s gains for the first half of 2018. The index rose 0.79% in the first two quarters, which
was lower than the 2.65% return on the S&P 500, including dividends, over the same period.
MetLife initiated its retreat in early 2016 when it announced it would shrink its investments in
hedge funds by an estimated $1.2 billion over the next couple of years. Its holdings dropped
from $1.9 billion at the end of 2015 to $637 million as of the end of March 2018, according to its
filings. That included a $6 million withdrawal during the first quarter of this year.
AIG was an even bigger investor, with $11 billion in hedge funds at the end of 2015. It said in
2016 it would cut the portfolio in half. The insurer pulled approximately $3.2 billion in 2016 and
$2.4 billion in 2017, according to its filings. In the first quarter of this year it took out another
$700 million, leaving it with $5.5 billion.
AIG’s net investment income during the first quarter dropped 27.3% as compared to the same
period a year earlier. It said the lower net investment income reflected, among other factors,
lower hedge-fund performance in the first quarter.
Appeared in the July 25, 2018, print edition as 'Insurers Retreat From Funds.'
https://www.wsj.com/articles/insurers-pull-back-from-hedge-funds-1532452505 2/3
1/29/2020 Why some big investors have had enough of hedge funds | Financial Times
Hedge funds
Why some big investors have had enough of hedge funds
High fees and sub-par performance have driven away pension funds and endowments
Hedge fund managers have underperformed the S&P 500 stock index every year since 2009 © iStock
Laurence Fletcher in London JANUARY 27 2020
Pension funds and endowments have been the backbone of the hedge fund industry for much of
the past decade. But many of these institutional investors are now turning away from the $3tn-in-
assets sector, dismayed by high fees and relatively lacklustre returns.
“We got out of most of the hedge fund portfolio,” said Scott Wilson, chief investment officer of the
$8.9bn endowment fund at the Washington University in St Louis, Missouri. “We don’t want any
investment just for the sake of having that investment.”
Since Mr Wilson’s appointment two years ago the fund has slashed its allocation to hedge funds
from about 20 per cent of the portfolio to little over 10 per cent. He plans to rebuild that share to
about 15 to 20 per cent over time, but will do so cautiously. “It’s not that all hedge funds are bad,
but you have to be very careful in the selection process,” he said.
The reshuffle comes after years of largely uninspiring performance from the hedge fund sector.
Managers have underperformed the S&P 500 stock index every year since 2009, both in rising and
falling markets. Last year provided hedge funds with their best returns in a decade, but they were
still well behind the market.
The current bull run in stocks — the longest in history — has increased the appeal of tracker funds,
which charge much less than hedge funds. Interest in private equity and debt has also boomed as
investors have looked beyond expensive public markets for opportunities.
Mike Powell, head of the private markets group at London-based USS Investment Management,
which manages the £68bn Universities Superannuation Scheme, said it had reduced its hedge-fund
holdings to less than 2 per cent of assets, from 4 per cent five years ago.
https://www.ft.com/content/71b5478c-3d40-11ea-b232-000f4477fbca 1/4
The pension fund is also planning to further reduce the number of hedge fund positions “to focus
only on those that offer strategic alignment with our investment priorities and clear value-for-
money”, said Mr Powell. The key problem with respect to hedge funds has been “the continued
disappointing performance . . . at a time when fees have remained high”, he said.
UK local authority pension funds, including West Yorkshire Pension Fund and Hampshire Pension
Fund, are also turning away from the sector. Hampshire is selling out of a hedge fund portfolio
with Morgan Stanley, in favour of a private debt mandate with JPMorgan.
“The current low volatility environment has made it difficult for hedge funds to perform and, as a
result, [investors] are asking questions on how they allocate in a way that they previously did not,”
said Dan Nolan, a director at Duff & Phelps, a professional services group.
Tracking institutional investors’ appetite for hedge funds is tricky. Investors in aggregate pulled
$43bn from hedge funds last year, their second-highest withdrawal since 2009, after $38bn of
withdrawals in 2018, according to data group HFR.
Since 2015, the share of total hedge fund assets coming from public and private sector pension
funds, endowments, foundations and insurance companies has slipped from 71 per cent to 67 per
cent, according to data from the Alternative Investment Management Association, a London-based
body.
Any sign that institutional investors are moving out en masse would be a blow for a hedge fund
sector that has grown dependent on their cash, after many wealthy investors and private banks
pulled back during the credit crisis.
“It is true there has been a waning of interest over the past two years,” said Jack Inglis, AIMA’s
chief executive. “However, recent investor surveys suggest that sentiment for 2020 has turned
positive and institutional investors are stating an intention to increase their allocations once
again.”
The data are not conclusive. A Deutsche Bank survey early last year of investors with $1.7tn in
hedge fund assets found that 42 per cent of pension funds had increased their exposure, while just
14 per cent reduced it.
However, an EY study, based on 62 interviews with investors managing $1.8tn in assets, found that
institutional investors’ allocation to hedge funds had dropped to 33 per cent of their alternative
investments last year from 40 per cent in 2018.
Some big-name institutions had already pared back their allocations. In 2014, US public pension
fund Calpers said it would stop investing in hedge funds, while the following year Dutch pension
fund PFZW said it had “all but eradicated” its hedge fund positions.
Others are considering similarly radical measures, after two years of losses in the past five. “There’s
a very strong recency bias in all investment decisions,” said Sanjiv Bhatia, who runs the Pembroke
Emerging Markets hedge fund in London and previously managed emerging-markets portfolios for
Harvard’s endowment.
“People chase returns, and it’s no different at the top of pension funds,” he said. “People up there
are not more visionary.”
laurence.fletcher@ft.com
Managing Assets for Insurers

UK
London
01 April 2020
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2/2/2018 Why Illinois Got Out of the Hedges - WSJ
DJIA 25789.67 -1.52% ▼ Nasdaq 7315.10 -0.96% ▼ U.S. 10 Yr -10 32 Yield 2.830% ▼ Crude Oil 65.24
https://www.wsj.com/articles/why-illinois-got-out-of-the-hedges-1517440169
COMMENTARY
Why Illinois Got Out of the Hedges

These funds are hard to understand and have lousy returns.
By Marc Levine
Jan. 31, 2018 6 09 p.m. ET
Can anyone explain why Illinois continues to own this hopelessly complicated bunch of hedge
funds? That’s the question I asked the state’s Board of Investment, which oversees $22 billion of
pension assets, when I became its chairman two years ago.
I had been reviewing the board’s portfolio and noticed a lot of holdings labeled hedge funds.
They were run by something called a “hedge fund manager,” whatever that was. Most bought
and sold stocks—but so did other funds we owned that showed up under the category “stocks”
and were run by “equity fund managers.”
One difference was that some of

the hedge-fund managers
showed up on television,
winning publicity by waging
shareholder proxy battles. But
such fame didn’t translate into
better returns.
Not that it was easy to tell. Even

though the hedge funds invested
in stocks, their returns weren’t
benchmarked against the overall
PHOTO: ISTOCK GETTY IMAGES stock market. Instead their
returns were compared with
those of other hedge funds, a much lower bar. Once we applied the proper benchmark, their
https://www.wsj.com/articles/why-illinois-got-out-of-the-hedges-1517440169 1/2
2/2/2018 Why Illinois Got Out of the Hedges - WSJ
underperformance became apparent. We were paying them hundreds of millions of dollars, yet
index funds were getting better returns. So we fired nearly all of them.
The few surviving stock-picking hedge funds were moved into our equity asset class, exactly
where they belonged. But we weren’t finished. We also owned hedge funds that bought and sold
things other than stocks, portfolios with lots of trading bets using derivatives on currencies,
commodities and other financial instruments.
Though these funds performed better than other hedge funds, absolute returns were
disappointing, barely more than cash. Industry “experts” suggested we keep these investments
to diversify our holdings and reduce overall risk. Yet we already owned bonds for that purpose.
Our Procter & Gamble bonds made sense to us. I’m pretty sure my children will brush their
teeth tonight. But I don’t have a clue about that long-lumber, short-sugar trade.
These funds’ managers also loved being on television. They talked about algorithms and
artificial intelligence, subjects that might be fascinating but that didn’t tell us much about
returns.
Our board began to question the conventional wisdom. Did anyone at the table really
understand what these hedge funds were doing? Should we be putting the retirement funds of
Illinois state employees into investments that not a single trustee, consultant or staffer could
explain?
If they had been earning double-digit returns, that might have motivated us to spend more time
trying to understand their strategies and risks. But for 2% returns? That was less than
investment-grade bonds were earning.
After firing these fund managers, our $1.5 billion hedge-fund asset class was reduced to zero.
No more illogical benchmarks, no more illusory risk reduction. Now we understand what we
own.
The $3 trillion hedge-fund industry will have to move on without us, though its investment
strategies seem better suited to generating publicity than great returns.
Mr. Levine is chairman of the Illinois State Board of Investment.
Appeared in the February 1, 2018, print edition.
https://www.wsj.com/articles/why-illinois-got-out-of-the-hedges-1517440169 2/2
4/22/2018 These hedge fund numbers can't be right | FT Alphaville
ALPHAVILLE
HOME MARKETS LIVE LONG ROOM
Part of the Someone is wrong on the internet series

These hedge fund numbers can't be right
40
APRIL 20, 2018 6:00 AM

By: Dan McCrum
Read more articles in SOMEONE IS WRONG ON THE INTERNET SERIES
Assets entrusted to the care of hedge funds have been rising in a steady flow for the past
year, according to data provider HFR. At the end of last month there was a record $3.2tn
entrusted to the fee-extraction industry.
Net inflows to funds were $1.1bn in the first three months of the year, “the fourth
consecutive quarter of net inflows”, according to HFR.
So performance must be pretty good, right? Lets have a look:
Huh, the average fund has increased the value of its investor's capital by 0.14 per cent,
after fees. That doesn't seem like much, given the return of volatility in markets, and the
wonderful opportunities for profit such movement presents.
Some individual stocks have offered chances to make hay, for instance. Netflix's share
price jumped 40 per cent in January, while Tesla's dropped by more than a fifth in
March.
The average hedge fund performed better than the US stock and bond markets, which
dropped in the first three months of the year. Again, from HFR:
https://ftalphaville.ft.com/2018/04/20/1524196800000/These-hedge-fund-numbers-can-t-be-right/ 1/10
Joe Bloggs, the everyday index fund investor, would have lost 1.2 per cent of his savings,
assuming he had 60 per cent of his money in stocks, and the rest in bonds.
Assume the rest of the year goes like this, and Slick Steve the hedge fund investor will be
up more than half a per cent, while poor Joe will have lost 5 per cent.
Is that really worth the typical (https://ftalphaville.ft.com/2013/12/09/1716732/two-and

-twenty-is-long-dead-and-buried/) hedge fund fee, a 1.6-per-cent annual management
fee and 18 per cent of profits?
Count the asset-weighted average instead and it looks better: Steve would be up 2.3 per
cent at the end of this year, 7 per cent richer than Joe.
Perhaps we shouldn't extrapolate one quarter into the future, especially if the enthusiasm
for hedge funds came from last year's performance:
A post-fee gain of almost 7 per cent. Maybe markets were flat?
Oh:
Slow Joe with his simple 60:40 combination made almost 15 per cent.
Try 2016 then:
Less than 3 per cent, while over in index land:
Surely that has to be wrong. Joe's bond fund was better than the hedge funds sometimes
favoured by the Porsche-and-private-plane set.
Back to 2015 then and, eesh, red pixels:
Beaten by the bond fund again:
Lets keep skipping through. In 2014, swankmeister Steve's hedge funds didn't beat Joe's
bond fund either. They did in 2013, which was a bad year for bonds and a decent one for
hedge funds. They posted a 9.5-per-cent gain after fees. But it was a monster year for the
US stock market, which increased in value by a third, including dividends.
In fact, go back a full decade, and every year Steve's decision to put his money into hedge
funds left him with worse returns than Joe and his index funds.
It's starting to seem like it's not the numbers which are wrong.
The financial crisis could be the answer. In 2008 stock markets plunged and a fifth of Joe
normal's investments evaporated. Steve's hedge funds, using HFR's asset weighted
number again, held the loss to 13 per cent.
Or to put it another way, the last time the hedge fund industry had a good year in terms of
protecting and preserving its investors' capital, Steve finished about 8 per cent ahead of
Joe. And remember -- those are the returns of the funds that didn't shut their doors (http
s://www.researchgate.net/publication/272702993_An_Examination_of_Hedge_Fund_
Survivorship_Bias_and_Attrition_Before_and_During_the_Global_Financial_Crisis).
Doing that about once a decade doesn't sound like the right answer to the question: What
is the hedge fund industry for?
It took Joe three years to catch up, and he hasn't looked back:
Read more articles in SOMEONE IS WRONG ON THE INTERNET SERIES

8/8/2018 Reputation of hedge funds is hacked back hard | Financial Times
FTfm Hedge funds

Reputation of hedge funds is hacked back hard
Research finds the investment vehicles underperform simple benchmarks after fees
New York's Employees’ Retirement System has dumped or reduced its hedge-fund portfolio © AFP
Chris Flood MAY 21, 2018
Most hedge funds deliver unattractive returns that can be easily beaten, according to a new
analysis that also rubbishes the claim that managers of these strategies reduce the risk of losses
for investors.
Scrutiny of the $3.2tn hedge-fund industry has increased as a result of the costly fees and often
disappointing performance of many of these lavishly rewarded managers, who boast that they
produce superior risk-adjusted returns.
CEM Benchmarking, a Toronto investment consultancy, compared the returns from hedge
funds reported by 150 large institutional investors with simple benchmarks that combined
equity and debt indices. These blended benchmarks were designed to match the risk profile of
each hedge fund.
CEM found that hedge funds underperformed the simple benchmarks by an average of 127 basis
points annually between 2000 and 2016 after fees were taken into account. “It is hard to justify
the typical fees charged by hedge funds if simple equity and debt blends outperform them,” said
Alexander Beath, a senior analyst with CEM.
High fees destroyed the alpha [superior returns] that hedge fund managers produced. Hedge
funds delivered an average of 145bp of outperformance annually compared with their
benchmarks before fees but this fell to -127bp after costs.
https://www.ft.com/content/3fa1898e-59eb-11e8-bdb7-f6677d2e1ce8 1/3
CEM also found that hedge funds failed to provide protection to investors when it was needed
most — during the financial crisis. In 2008 hedge funds, on average, underperformed the CEM
benchmarks by 6 percentage points after fees, the worst result in the 17-year analysis.
The consultancy also examined the diversified hedge fund portfolios invested by large asset
owners, including pension funds and sovereign wealth funds, and found 64 per cent
underperformed their custom benchmarks iin 2000-16.
“It is not widely understood, even among sophisticated investors, that it is possible to buy
alternatives to hedge funds that deliver similar risk and return characteristics at very low cost,”
said Mr Beath.
A few leading US public pension schemes, notably the California Public Employees’ Retirement
System and the New York City Employees’ Retirement System, have dumped or reduced their
hedge-fund portfolios after repeated performance disappointments.
Many large investors have remained loyal, however. As a result, assets run by hedge fund
managers have more than doubled in size since the financial crisis, up from $1.4tn at the end of
2008 to about $3.2tn.
The club of the largest investors — those with more than $1bn invested in hedge funds —
expanded to 242 by May 2017 from 227 in 2015, according to Preqin, the data provider. The
$1bn investor club member typically holds 29 hedge funds in their portfolios. “Despite some
prominent departures, large investors continued to build significant portfolios of hedge funds in
2017,” said Amy Bensted, head of hedge fund products at Preqin.
Some of the world’s most successful hedge funds have closed their doors to new investors
because of capacity constraints, prompting a search for clones.
Markov Processes International, a New Jersey quantitative research and analytics provider, has
constructed indices that track the performance of elite hedge funds which can be replicated by
low-cost exchange traded funds.
Its newest benchmark, the MPI Barclay Elite Systematic Traders index, aims to capture the
returns of the 20 largest quantitative hedge fund managers that can be tracked via ETFs.
Rohtas Handa, MPI’s head of institutional solutions, said: “Investors look to hedge funds for
diversification but this does not have to be expensive. The new investable tracker indices could
replace the core of investors’ hedge fund portfolios, allowing them to increase their allocations
to managers that have an ability to provide novel returns.”
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3/27/2017 Eton Park to Shut Down as $3 Trillion Hedge Fund Industry Faces Turmoil The New York Times
https://nyti.ms/2nHCjAv
Eton Park to Shut Down as $3 Trillion

Hedge Fund Industry Faces Turmoil
By MATTHEW GOLDSTEIN MARCH 23, 2017
A wellknown money manager is shutting down his firm after a year of
disappointing results — the latest sign of turmoil in the $3 trillion hedge fund
industry.
Eric Mindich, 49, was once a Wall Street wunderkind, becoming the
youngest ever partner at Goldman Sachs more than 20 years ago. He launched
Eton Park Capital Management in 2004, expanding it to manage as much as $14
billion.
But on Thursday he said he was throwing in the towel. In a letter to investors

reviewed by The New York Times, Mr. Mindich said a mix of challenging market
conditions and Eton Park’s poor performance had led to the decision. The firm’s
assets under management have fallen by half since 2011.
“A combination of industry headwinds, a difficult market environment and,

importantly, our own disappointing 2016 results have challenged our ability to
continue to maintain the scale and scope we believe necessary to pursue our
investment program,” Mr. Mindich wrote.
Eton Park is the first big hedge fund to shut down this year. But the closure comes
as other wellknown money managers are struggling to post the kind of double
https://www.nytimes.com/2017/03/23/business/dealbook/etonparkhedgefundcloses.html?_r=0 1/4
digit returns that their investors have come to expect, and that justify their firms’
hefty fees.
William A. Ackman’s Pershing Square Capital Management, for instance, is

still reeling from its $4 billion losing bet on shares of Valeant Pharmaceuticals
International, the embattled drug company that has seen its stock plunge over
concern about its accounting practices.
And John Paulson, who made billions betting on the collapse of the housing
market during the financial crisis, has struggled to find a consistent winning
formula since that time.
At the same time, state pension funds led by the California Public Employees’
Retirement System are dumping their hedge fund portfolios, contending many
strategies are too complex and costly — especially at a time when many firms are
underperforming.
Eton Park, based in Manhattan, will begin returning its roughly $7 billion in
capital to investors, and anticipates returning about 40 percent of its outside
money by the end of April.
The decision by Mr. Mindich to close the firm comes after a tough year in
2016, when Eton Park’s returns were down about 9.4 percent. So far this year, the
fund’s performance has been flat.
The firm sent out the letter on Thursday after notifying its roughly 120
employees of the decision to close.
Over all, 2016 was one of the worst years for hedge fund closures since the
financial crisis, with hundreds of smaller funds closing because of poor
performance, investor redemptions and complaints about high fees.
In all, 1,057 hedge funds closed or were liquidated in 2016, compared with
729 openings, according to Hedge Fund Research Inc. The number of active
hedge funds is at its lowest level since 2012.
In a sign of the industry’s continuing struggles, the HFRI Fund Weighted

Composite Index — a broad measure of hedge fund performance — was up just
2.23 percent for the year at the end of February, compared with a roughly 5
percent gain for the Standard & Poor’s 500 during that time.
One of the larger hedge funds to shut down last year was Perry Capital, the
firm founded by Richard C. Perry, another Goldman alumnus. And one of the
notable small hedge fund closures was Eaglevale Partners, a firm cofounded by
Marc Mezvinsky, the soninlaw of former President Bill Clinton and former
Secretary of State Hillary Clinton.
“Eton Park is in good company,” said Erik Gordon, a professor at the

University of Michigan’s Ross School of Business. “Over 1,000 funds returned
their investors’ money over the last year, including starpower funds.”
Mr. Mindich and his wife, Stacey, a theater producer, are prominent
philanthropists. In 2015, the couple made a $15 million gift to fund public service
initiatives at Harvard. They have also donated to Mount Sinai Medical Center in
New York to support children’s health research.
Mr. Mindich made his name as a fastrising star on Wall Street, heading up
Goldman’s arbitrage desk at the age of 25. In 1994, at 27, he became Goldman’s
youngest partner ever and was a leader of the firm’s equities arbitrage business.
The arbitrage desk at Goldman, under the tutelage of Robert Rubin, who
would leave Goldman to become Treasury secretary in 1995, spawned a number
of hedge fund managers, including Mr. Mindich, Mr. Perry and Daniel Och,
founder of OchZiff Capital Management.
Mr. Mindich was seen as a Wall Street wunderkind when he started Eton
Park. The firm started with about $3.5 billion in capital and at the time was
among the biggest and splashiest hedge fund launches.
And for many years, the firm posted solid returns, investing heavily in stocks,
bonds and derivatives. One of the hedge fund’s best years came in 2013, when it
returned 22 percent. In 2008, one of the worst years for hedge funds, Eton Park
lost 10 percent, but that was far better than most other firms fared.
The firm grew to manage about $14 billion, and opened offices in London
and Hong Kong. But a week ago, Eton Park quietly closed its London office, a sign
of the trouble to come.
“As responsible stewards of your capital, we have been unwilling to

compromise on the business model and investment program in which you
invested or the way in which we have pursued it,” Mr. Mindich wrote in the letter
to investors. “As a result, we have made the very difficult decision to return your
capital, from a position of relative strength.”
A version of this article appears in print on March 24, 2017, on Page B1 of the New York edition with
the headline: Eton Park Is the Latest Hedge Fund to Fizzle.
© 2017 The New York Times Company
6/21/2020 Invest With the Upper Crust and Sometimes You Just Get Crumbs - WSJ
https://www.wsj.com/articles/invest-with-the-upper-crust-and-sometimes-you-just-get-crumbs-11592585413
THE INTELLIGENT INVESTOR
Invest With the Upper Crust and Sometimes

You Just Get Crumbs
The ‘performance’ fees that hedge-fund managers charge can walk off with most of your return
ILLUSTRATION: ALEX NABAUM
By
Jason Zweig
Updated June 19, 2020 3 41 pm ET
Investment performance can be fleeting, but fees are forever.
That’s the lesson from a recent reversal at a prominent fund. Chaotic markets can cancel
years’ worth of gains in days, but expenses don’t dwindle when profits disappear. And,
new research shows, those costs can be even higher than they look.
Consider SkyBridge Multi-Adviser Hedge Fund Portfolios LLC, a fund of funds, or a basket
of hedge funds that are run by about two dozen different managers. Normally you’d have
to put up millions of dollars to be allowed into any of these portfolios, but you can invest
in them through SkyBridge with as little as $25,000.
For many years, returns were outstanding. From 2009 through 2013, SkyBridge earned an
average of 14.5% annually after expenses. That crushed the portfolio’s benchmark, the
HFRI Fund of Funds Composite Index, by almost 10 percentage points annually—and
https://www.wsj.com/articles/invest-with-the-upper-crust-and-sometimes-you-just-get-crumbs-11592585413?mod=markets_lead_pos5 1/4
ended up not far behind the S&P 500’s return, while offering investors a smoother ride
than the stock market.
SHARE YOUR THOUGHTS
Would you invest in a hedge fund? Why or why not? Join the conversation below.
This March, however, SkyBridge lost 24.7% as the coronavirus pandemic pounded the
underlying hedge funds that hold its favorite asset: structured credit, or bundles of
corporate and consumer borrowings.
That one blow obliterated most of the fund’s gains. As of the end of February, $100,000
invested in SkyBridge had grown to nearly $186,000 over the prior 10 years, more than
double the average rate of return at similar hedge funds. By the end of March, that 10-year
gain had shrunk to less than $137,000—well below what you could have earned in a high-
quality bond fund. The fund has since rebounded a bit, up 0.6% in April and 2.2% in May.
Fees didn’t fall, however.
To SkyBridge’s credit, its expenses are unusually transparent—and much lower than at
many competitors. Unlike nearly all hedge funds and private investment pools, SkyBridge
files detailed public disclosures.
Out of its 1.5% management fee, SkyBridge pays approximately 0.85% annually to the
brokerage and investment-advisory firms that sell the fund. Those payments, I estimate,
reached $380 million over the past 10 years.
That’s not all. The underlying funds bundled into the SkyBridge portfolio pass through
much higher expenses. Their management and incentive fees total 5%, pushing
SkyBridge’s total costs past 7.1%—even though it doesn’t charge a performance fee itself.
The coronavirus credit crunch in March was “a direct meteor strike on our portfolios,”
says Anthony Scaramucci, SkyBridge’s founder and co-managing partner. “I think pre-
pandemic there was a lot of value for everyone. The pandemic will definitely hurt our
numbers, but so did 2008. But 2009-2014 was worth waiting around for, net of fees.”
Yes, that’s the same Anthony Scaramucci who served briefly as communications director
in the Trump White House in 2017. But we’re looking at fund costs, not politics, and your
feelings about Messrs. Trump and Scaramucci—positive or negative—should have

nothing to do with judgments about investment expenses and returns.
A small stake in SkyBridge—say, 3% to 8% of an investor’s total portfolio—is “a return

stabilizer” in the long run, says Mr. Scaramucci. Its favorite asset, structured credit, is
“going to do phenomenally well in a recovery,” he says, and clients who “make the
decision to stay through the recovery” should be amply rewarded.
SkyBridge’s fund of funds also offers a way “to get exposure to great managers like
Howard Marks [of Oaktree Capital Management] and Steve Cohen [of Point72 Asset
Management LP],” says Mr. Scaramucci.
He adds, “This is like an Hermès Birkin bag [which retails for thousands of dollars]. You’re
invested with some of the most successful money managers in the world, and you’re
paying additional fees for that. You could invest elsewhere for much lower costs, the same
way you could get hundreds of pocketbooks at Walmart for the cost of one Hermès Birkin
bag.”
According to new research, though, paying up for such access comes with a twist. From
1995 through 2016, hedge-fund investors shelled out an average of 3.44% annually in
management and incentive fees, according to a study by finance professors Itzhak Ben-
David and Justin Birru of Ohio State University and Andrea Rossi of the University of
Arizona.
The study finds that investors earned net returns of only 1.96% annually—meaning they
paid $1.76 in costs for every dollar they got to keep.
MORE FROM THE INTELLIGENT INVESTOR
•Playing the Market Has a Whole New Meaning June 12, 2020
•This Bull Market Isn’t as Big as You Think June 5, 2020
•When Your Lookalike Funds Don’t Act Alike May 22, 2020
•When Failure Is an Option: A Trading Tactic Soaks Investors May 15, 2020
Prof. Ben-David and his colleagues measured those net returns against the funds’
performance hurdles—which, often, an earthworm could easily clear. When Warren
Buffett ran a private partnership six decades ago, he charged a performance fee of 25% of
any gains over 6%. Nowadays, many hedge funds take a hefty cut of any return above zero,
so long as the portfolio isn’t below its previous high.
Between 1995 and 2008, the hedge funds in this study produced cumulative losses, before
expenses, of $1.3 billion—but still generated almost $52 billion in performance payments
to their managers.
That’s largely because most hedge funds assess performance fees when they make money,
but don’t charge negative fees or give back past fees when they lose money. When returns
vanish, the expenses don’t.
All told, 64% of the excess return of the hedge funds in the study went to the managers in
the form of expenses. Of every $3 the funds earned, the managers kept $2, leaving
investors with $1. That doesn’t take into account the extra risk at many of these funds or
the taxes their investors incurred.
Pay up, then, if you want the status of exclusive access. But remember that returns, and
the prestige they offer, aren’t permanent. Costs are.
Copyright © 2020 Dow Jones & Company, Inc. All Rights Reserved
10/29/22, 7:13 PM Multi-strategy hedge funds are the new, superior fund-of-funds | Financial Times
Opinion FT Alphaville
Multi-strategy hedge funds are the new, superior fund-of-funds
One style to rule them all, and in the alpha bind them
ROBIN WIGGLESWORTH
Robin Wigglesworth OCTOBER 27 2022
One of the consequences of the financial crisis that gets little airplay these days is the
slow extinction of fund-of-hedge funds. They’re not dead yet of course (there’s still
about $644bn in them), but it’s pretty much the only corner of the investment
industry that has flatlined or shrunk over the past decade.
Fund of funds made make an alluring promise to investors. For a fee, they find the
finest hedge fund managers on the planet, combine them into a diversified,
uncorrelated and high-returning portfolio, monitor their performance and
occasionally cull the weakest from the herd.
In reality, in many cases it is simply another fat layer of fees over a compensation
scheme masquerading as an asset class, which has ended up producing dismal
results. That several big funds-of-funds invested in Bernard Madoff’s Ponzi scheme
hammered home how feckless some of them were, and soured a generation of
investors against the vehicles.
However, the basic model outlined above will sound familiar to some Alphaville
readers, as this is pretty much the model of “multi-strategy” hedge funds like
Millennium, Citadel, Point72, Balyasny or Schonfeld.
I’ t it d t di thi hill b t I
https://www.ft.com/content/948727d3-598c-4821-b5a3-8b412201de2f
k th t lti t t h ld ti ll 1/6
I’m not quite ready to die on this hill, but I reckon that multistrats should essentially
be seen as a souped-up, better version of old-school fund-of-funds. They will
eventually supplant them completely — and could ultimately dominate the hedge
fund industry as a whole.
To be honest, they already have eclipsed funds-of-funds. HFR’s data indicates that
the assets under management of multi-strategy hedge funds have comfortably
vaulted above stagnating FoFs in recent years.
With assets under management of about $890bn, multi-strategy hedge funds are
now bigger than standalone global macro funds (ca $607bn if you strip out
multistrats that do macro) and approaching the roughly $1tn size of the classic
equity hedge fund industry, according to HFR’s data.
Unlike traditional long-short equity funds — like the famed Tiger cubs that came out
of Julian Robertson’s Tiger Management — multistrats have a horde of portfolio
managers, traders and analysts that pursue a wide variety of strategies and operate
in semi-autonomous units inside the mother ship. (That’s why they’re sometimes
also called “multi-manager” hedge funds.)
They can do anything from M&A arb, commodities, systematic trend-following,

index rebalancing trades, global macro, long-short equities, or fixed income relative
value Basically the whole menu of potential hedge fund strategies all combined with
https://www.ft.com/content/948727d3-598c-4821-b5a3-8b412201de2f 2/6
value. Basically the whole menu of potential hedge fund strategies, all combined with
a cherry on top.
The advantage is that some strategies that struggle as standalone funds can be added
in for an overall better result. For example, a dedicated short selling hedge fund can
be tricky to scale as an independent firm, but can be a great source of diversified
returns as a sleeve in a broader one.
Risk is managed for each unit, and centrally by the firm itself. Even for hedge funds,
multistrats are fabled for their brutal Darwinism. If you do well you get more money
from the central pool to manage, and if you do poorly your allocation gets cut. And if
you do very poorly, then you’re out faster than you can say “mayo”.
So far this year, multistrat funds are the second-best performing major hedge fund
style, according to Aurum, only surpassed by quant funds (where we suspect results
are heavily skewed by systematic trend-followers like Systematica that have been
minting it this year).
Of course, there’s a fair bit of variety in the results. To take some examples we’ve
seen in the press and investor documents lately, Citadel, Millennium, and Brummer
are up 29 per cent, 9.7 per cent, and 15.3 per cent respectively this year through
September, Weiss Multi-Strategy was flat by the end of August, while Sculptor
Capital (formerly known as Och-Ziff) was down over 10 per cent.
Funds-of-funds are infamous for their extra layer of fees, but multi-strategy funds
are similarly notorious for their own typical cost structure, known as a “pass-
y yp , p
through” fee model.
In lieu of the typical 2 per cent annual management fee many simply pass every
single expense — whether rents, Bloomberg terminals, server costs, salaries, bonuses
and even client entertainment — on to their investors. Often this can end up being 3-
10 per cent of assets a year, on top of the 20-30 per cent of any profits they take.
This is unusual in an industry where average fees have grudgingly been heading
downwards for a while.
Hefty pass-through fees can be quite a big turn-off for some investors and the hedge
fund consultants that act as their money conduits.
FTAV also suspects that their breadth means they actually sit a little awkwardly in a
some institutional investor’s overall portfolio. Most investors like to try to fine-tune
their allocations by asset classes, factors, styles etc, but multistrats can defy
categorisation. Many fund-of-funds probably have the same issue today.
However, the pass-through model is an advantage when it comes to attracting entire

teams of top traders. These days you can basically set up a quasi-independent hedge
fund under the umbrella of a multistrat and not have to worry about the non-
investing side at all.
And in reality, there are few major institutional investors in the world that wouldn’t
kill for a fatter allocation to the flagship funds of Citadel or Millennium.
Their long-terms are the stuff of legend, but most of the biggest and best-performing
funds are closed to new money, and typically return most of their annual gains to
investors to control their size and optimise their gains. That means money sloshes
over elsewhere in the multistrat world.
But I suspect that one of the biggest reasons why there is still a lot of money left in
funds-of-funds — aside from classic inertia — is simply that pretty much all the top-
tier multi-manager funds are closed to new money. Here’s what Bloomberg wrote in
a piece last year:
Across the industry, a record 1,144 hedge funds have stopped accepting
new money, the most since data tracker Preqin started compiling the
information. Of twenty multi-manager firms managing more than $220
billion collectively, thirteen are no longer taking in more cash, according
to Julius Baer Group Ltd. Crucially, those closures are happening at
some of the biggest and sought-after firms.
So why am I making this long-winded argument about multi-strategy hedge funds

and FoFs? It’s just something I’ve been thinking about as a mental model to explain
to myself the exploding popularity of multistrats (beyond the juicy returns of some of
the top funds).
Thoroughly analysing portfolio managers, judging how much capital their strategies
can optimally manage, constantly monitoring them, and firing underperformers;
management is an arduous, difficult task — even before you start thinking of how to
combine them into an overall portfolio.
I suspect a lot of institutional investors are realistically not up to it, but they
intuitively liked the fund-of-funds model, and now love the multistrat model.
After all, who wouldn’t want Steve Cohen, Izzy Englander, or Ken Griffin to oversee
their hedge fund portfolio? And if you can’t get one of them, then the second- and
third-tier multi-manager funds are still likely to do better than most FoFs. The
question is whether they’ll still be worth it, or if they’re merely benefiting of the
lustre of the top dogs.
8/6/2019 Buffett and Bogle unite against hedge funds | Financial Times
Opinion FTfm
Buffett and Bogle unite against hedge funds
Vanguard’s rise is more than just a symbolic humiliation to active management, says Stephen Foley
STEPHEN FOLEY
© FT
Stephen Foley MAY 8, 2016
Warren Buffett and Jack Bogle are the octogenarian opposites of investing: Buffett, the
ultimate stockpicker, whose legacy includes educating a generation of value investors; Bogle,
the founder of Vanguard, who has proselytised index investing for 40 years. Yet within a
fortnight of each other, they gave essentially the same speech.
Mr Buffett described his 10-minute lesson on the stupidity of investing in hedge funds,
delivered midway through Berkshire Hathaway’s annual meeting in Omaha, as a “sermon”. Mr
Bogle’s address to the Institute for Quantitative Finance in Washington earlier last month also
had religious overtones. He pitched index investing as David fighting the intellectual Goliaths
of algorithm-driven hedge funds, active mutual funds and the new breed of “smart- beta”
managers.
It was a cute analogy because, as Malcolm Gladwell, the author, has pointed out, David was no
underdog. A giant target weighed down by armour, Goliath was never going to be a match for a
simple slinger of deadly stones.
The Goliaths of fund management believe that “the application of multiple complex equations
— the language of science and technology, of engineering and mathematics, developed with
computers processing big data, and trading stocks at the speed of light — make [them] far
stronger and more powerful than are we indexing Davids”, Mr Bogle said.
https://www.ft.com/content/6f04eb52-1141-11e6-839f-2922947098f0 1/3
“The index fund relies on a simple arithmetic, a mathematical tautology that could be
calculated by a second grader: gross return in the stock market, minus the frictional costs of
investing, equals the net return that is shared by all investors as a group.”
Mr Buffett made the same point at his meeting by asking the 18,000-strong crowd in the arena
to imagine we were divided down the middle. On one side would be the “low energy” investors
who buy half of everything that exists in the investment world and then do nothing, “a slovenly
group that just sits for year after year”. In the other half would be the “hyperactives”, as he
described them.
“This group, by definition, can’t change from its half of the ultimate investment results. They
are going to have the same results as the ‘no energy’ people but they’re also going to have
terrific expenses because they’re all going to be moving around, hiring hedge funds, hiring
consultants and paying lots of commissions. As a group, that half has to do worse than this half
does.”
In Mr Bogle’s speech, he attempted to quantify the disadvantage. Hedge funds manage about
$2.8tn of assets, generating about 300 basis points in management and performance fees, he
estimated; about $84bn in fees alone. Vanguard, by contrast, supervises about $2tn in index
funds, at a cost of about $1.6bn.
“The heavily armed and armoured hedge fund Goliaths versus the simple unencumbered
index-fund David. Who will better serve the long-term investor?”
It is eight years since Mr Buffett wagered $1m for charity that a simple Vanguard S&P index
fund would beat any portfolio of five hedge funds anyone cared to construct over the next
decade. Ted Seides, the hedge fund manager who took up the challenge, is losing badly. It is
hard to see his portfolio closing the gap in respective net returns after fees: the hedge funds
have returned 22 per cent while the S&P is up 66 per cent. It is possible, of course, that all five
funds will place bets on a stock market crash and it will come true in the final two years of the
bet. We’ll see.
More likely, this wager will become the high-profile embarrassment to the hedge fund industry
that Mr Buffett hoped it would be. Meanwhile, the rise and rise and rise of Vanguard and its
index-tracking copycats is more than just a symbolic humiliation to active fund management.
As Morningstar, the data provider, reported last month, the shift of money out of actively
managed mutual funds has accelerated in the past year. Passively managed mutual funds and
exchange traded funds in the US attracted $384bn in the year to March, while active funds lost
$277bn in assets.
And hedge funds — the most active managers of all — suffered their first quarterly outflows
since the financial crisis in the first three months of 2016, as institutional investors staged a
backlash against high fees and disappointing performance.
Mr Buffett joked at his meeting that he would put on the same anti-hedge fund bet again today
except that having to wait 10 years to collect “gets a little more problematic as we go through
life”. But he and Mr Bogle are being vindicated in the here and now. They have been powerful
preachers, and their sermons are winning converts.
Stephen Foley is the FT’s US investment correspondent
FT Investment Management
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WEEKEND INVESTOR May 31, 2013, 3:11 p.m. ET
By MARK HULBERT
Hedge funds—traditionally the province of wealthy investors—are increasingly available to the

public via mutual funds that invest in hedge funds or follow hedge-fund-like strategies.
The number of such mutual funds has mushroomed in recent years. Fund tracker Lipper counts
409 offerings in its "absolute return" category, which contains funds that seek "positive returns in
all market conditions."
That is over four times more than just two years ago.
Many of the funds have minimum investments as low as
$1,000, whereas hedge funds often require at least
$500,000.
If history is any guide, however, you will be better off

investing in low-cost index funds.
It's easy to understand the allure of hedge funds, even

though they charge high fees—typically 2% of assets and
20% of profits. (Funds of hedge funds tack on additional fees.) Hedge funds supposedly pursue
complicated strategies that do well whether markets are going up or down.
Yet the average hedge fund has done no better than the stock market since the October 2007
bull-market high. The Dow Jones Credit Suisse Hedge Fund index, encompassing nearly 8,000
funds, produced a 3.3% annualized gain over this period, versus 3.4% for the Wilshire 5000 Total
Market index, which reflects all U.S. stocks, including dividends.
The real picture might be even less flattering, since hedge funds often invest in other asset classes
besides U.S. equities, such as bonds and commodities. The investment-grade U.S. bond market,
for example, as judged by the Vanguard Total Bond Market Index Fund, has produced a 5.9%
annualized return since October 2007. Gold bullion has gained 13% annualized.
A fairer comparison might be with all mutual funds and exchange-traded funds, regardless of
investment focus. According to Lipper, the average annualized return of all funds it follows was
5% from October 2007 through the end of April—1.7 percentage points a year higher than the
1 of 3 6/3/2013 7:42 PM
average hedge fund.
To be sure, the typical hedge fund did provide some downside protection during the 2007-09
bear market. In contrast to the Wilshire's 39% annualized loss, the Dow Jones Credit Suisse
Hedge Fund index lost an annualized 12%.
But since the bull market began in March 2009, the average hedge fund has lagged behind the
Wilshire by more than 14 percentage points a year.
Even if you thought that trailing the bull market by this much is an acceptable price for the
downside protection, you should know you can get that protection at a much lower cost by
investing in index funds.
Since October 2007, a portfolio invested 60% in a stock-market index fund and 40% in a
bond-market index fund has beaten the average hedge fund by 1.9 percentage point a year, with
no more downside risk or volatility, according to the Hulbert Financial Digest.
You might discount this result on the grounds that the period since the October 2007 high is
unique and unlikely to be repeated in the future. Yet the same conclusion emerges when focusing
on the past decade.
To be sure, these results reflect a broad hedge-fund index, and some funds have done much
better. A few have performed spectacularly. But the proportion of hedge funds making enough to
justify their high fees is very small, according to David Hsieh, a Duke University finance professor
who has studied hedge-fund performance.
In one study, he compared each of several hundred equity hedge funds to a control portfolio
designed to have the same risk profile but owning only index funds and other widely available
investments. He found that only one out of five did better than its corresponding control portfolio.
What's more, Mr. Hsieh says, it is nearly impossible to identify in advance these select few
hedge-fund managers who do add value.
In another study, Mr. Hsieh examined funds of hedge funds, which invest in individual hedge
funds. He found that just 2% of them earned more than enough to justify paying their fees.
If funds of hedge funds have such a dismal record, despite having full-time staffs to analyze hedge
funds, what makes you think you can do any better?
Mr. Hsieh cautioned that these results might paint an unfairly negative picture. That is because
the proportion of hedge-fund managers who have genuine ability, while low, still is higher than
among mutual-fund managers.
Nevertheless, the same investment lesson emerges regardless of whether only a small minority of
hedge funds, or none, are able to consistently beat the market: Invest in index funds.
If a 100% stock allocation seems too risky, then allocate some of your portfolio to more
conservative assets, such as bonds. Among the lowest-cost ways to invest in the stock and bond
markets are the Vanguard Total Stock Market Index Fund, which tracks the Wilshire 5000 index
and charges an expense ratio of 0.17%, or $17 per $10,000 invested, and the Vanguard Total Bond
Market Index Fund, which is benchmarked to the Barclays U.S. Aggregate Float-Adjusted index
and charges 0.2%, or $20 per $10,000 invested.
2 of 3 6/3/2013 7:42 PM
If you still want to dabble in hedge-fund-like strategies, the top-performing open-end mutual
fund in the absolute-return category over both the last one- and three-year periods, Lipper says, is
the AmericaFirst Quantitative Strategies Fund, with an expense ratio of 2.28%, or $228 per
$10,000 invested.
—Mark Hulbert is editor of the Hulbert Financial Digest, which is owned by MarketWatch/Dow Jones. Email:
mark.hulbert@dowjones.com
A version of this article appeared June 1, 2013, on page B7 in the U.S. edition of The Wall Street
Journal, with the headline: The Verdict Is In: Hedge Funds Aren't Worth the Money.
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by
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3 of 3 6/3/2013 7:42 PM
10/26/2015 Nine out of 10 active funds underperform benchmark FT.com
October 25, 2015 4:44 am
Nine out of 10 active funds underperform

benchmark
Chris Flood
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Nine out of ten actively managed European equity funds have underperformed their benchmark
over the past decade, intensifying pressure on stockpicking asset managers to prove their worth.
Actively managed UK equity funds have also routinely failed to beat their benchmark, with three
quarters of managers in this category underperforming over the past decade, according to new data
from S&P Dow Jones Indices.
Tim Edwards, senior director of investment strategy at the index

provider, said: “Only 15 per cent or so of fund assets globally are managed passively, but there is an
accumulation of data showing that investors face disappointment with active managers.”
Evidence of longterm outperformance over the past decade was scarce even among managers
specialising in emerging markets and small companies, where active stock picking is widely believed
to have an advantage over tracking an index.
Fewer than one in five UK smallcap and sterlingdenominated emerging market fund managers
beat their benchmarks over 10 years. Almost 98 per cent of eurodenominated emerging market
funds underperformed over the same period.
The S&P data showed that fewer than half of the 489 UK equity funds and 1,192 European equity
funds that were launched 10 years ago have managed to survive.
“The evidence is stacked against a longterm investor looking for a fund that will both survive for 10
years and deliver outperformance. It really is a very difficult task,” said Mr Edwards.
Growing investor awareness of active managers’ inability to beat their benchmarks has helped spur
rapid growth of passively managed exchange traded funds over the past five years.
http://www.ft.com/intl/cms/s/0/dd89c0be797c11e5933defcdc3c11c89.html#axzz3pfhaHPgb 1/2
10/26/2015 Nine out of 10 active funds underperform benchmark FT.com
According to ETFGI, a consultancy, ETFs had $2.8tn in assets at the end of January, up more than
$1tn since 2010. Their asset base still significantly lags behind that of the broader mutual fund
industry, however, which accounts for $31tn of assets.
Active managers of UK large and midcap equity funds posted a strong performance in the 12
months to the end of June, with 91 per cent beating their benchmarks. But the proportion of
outperformers deteriorated steadily, with 84 per cent beating their benchmark over three years,
dropping to 64 per cent over five years.
Records over all the time periods were significantly better for UK active managers than for their
counterparts managing panEuropean, German or French equity funds.
S&P included 10year performance data, which take fees into account, for the first time in the
midyear update of its longrunning scorecard, known as Spiva (S&P index versus active).
RELATED TOPICS United Kingdom
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3/21/2016 86% of active equity funds underperform FT.com
Click here to try our new website — you can come back at any time
March 20, 2016 9:33 am
86% of active equity funds underperform

Madison Marriage
Almost every actively managed equity fund in Europe investing in global, emerging and US markets
has failed to beat its benchmark over the past decade, raising more questions about the value
stockpicking managers add.
The findings pile further pressure on active fund managers, who have come under repeated attack
from academics and consumer groups for charging high fees for poor performance.
An indepth study by S&P Dow Jones Indices also found that 100 per
cent of actively managed equity funds sold in the Netherlands have failed to beat their benchmark
over the past five years.
Ninetyfive per cent of funds sold in Switzerland and 88 per cent of those on offer in Denmark also
underperformed.
Daniel Ung, director of research at S&P Dow Jones Indices, said: “The 100 per cent figure is very
shocking. The other statistics are not much better. We are not saying active management is dead,
but active managers need to justify what they are doing.”
Overall in Europe, four out of five active equity funds failed to beat their benchmark over the past
five years, rising to 86 per cent over the past decade, according to S&P’s analysis of the performance
after fees of 25,000 active funds.
Within that sample, 98.9 per cent of US equity funds underperformed over the past 10 years, 97 per
cent of emerging market funds and 97.8 per cent of global equity funds.
“There are some good managers out there but they are not easy to find. At a regional level, at a
http://www.ft.com/intl/cms/s/0/e555d83aed2811e5888e2eadd5fbc4a4.html#axzz43Xq0BQId 1/3
global level, in emerging markets, you name it, they are not performing well. On a oneyear basis it
is still possible to outperform, but it is very difficult on a consistent basis over the long run,” Mr Ung
said.
Asset management experts said the findings will exacerbate investor concerns about overpriced,
underperforming active funds.
These fears have fuelled demand for cheap indextracking funds, enabling the lowcost exchange
traded fund market to grow more than sixfold over the past decade, to $2.9tn.
David Blake, director of the pensions institute at London’s Cass Business School, said: “The average
equity fund manager is unable to deliver outperformance from stock selection or market timing.
This means a typical investor would be almost 1.44 per cent better off per annum by switching to a
UK equity tracker.
“A small group of star fund managers are able to generate superior performance, but they extract
the whole of this outperformance for themselves via fees, leaving nothing for investors. All but the
most sophisticated investors should invest in index funds.”
Andrew Clare, who holds the chair in asset management at Cass Business School, added: “Finding a
good active manager of developedeconomy equities is very difficult, which is why many
institutional investors don’t bother looking.”
Equity funds domiciled in the UK — one of Europe’s largest asset management markets —
performed relatively well, by contrast. The majority of UK large and midcap funds beat their
benchmark over one, three and five years. Over 10 years, however, all UK fund categories
underperformed.
A spokesperson for the Investment Association, which represents the interests of UK asset
managers, said: “British actively managed funds are highly competitive and the average fund has
beaten the UK, global emerging markets and European markets in the past five years.
“There are no guarantees with active management, but there is clear evidence that the UK
investment industry offers a range of compelling active products that add value for investors.”
Net sales of European ETFs jumped 55 per cent last year, to €74bn, but sales of actively managed
funds dropped 15 per cent to €274bn, according Lipper, the research company.
Jake Moeller, head of UK research at Lipper, said active managers needed to do more to combat
intense competition from the passive industry.
He said: “Styles fall out of favour, fund managers make mistakes and markets are wholly
unpredictable. Nobody denies that investing in active funds requires considerably more due
diligence. But the rewards for selecting a good active fund remain considerable.
“If this [research] encourages some retail investors to question their financial advisers and fund
groups, then that is a good thing. I would, however, like active fund groups to get on the front foot
[and] sing out [their] benefits more loudly. The passive voice is getting louder and louder.”
RELATED TOPICS United States of America, United Kingdom
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1/6/2017 Active managers tripped up as just 19% beat benchmark FT.com
Last updated: January 5, 2017 10:10 pm
Active managers tripped up as just 19% beat benchmark

Adam Samson in New York
Only one in five mutual fund managers that invest in shares of large US companies beat their benchmark last year — half of the rate
notched up in 2015.
The decline underscored the struggles for active managers amid increasing competition from passive funds.
Just 19 per cent of largecap mutual fund managers notched returns that exceeded that of their
benchmark in 2016, compared with 41 per cent in the previous year, according to data compiled by BofA Merrill Lynch.
Growth funds, which aim to invest in stocks with aboveaverage price increases, had the worst performance last year, with only 7 per
cent beating the Russell 1000 growth index, which logged a total return of 7 per cent.
Value funds, which seek stocks with steadier price performance and heftier dividends, performed better with 22 per cent, beating the
17 per cent for the Russell 1000 value index.
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BofA said managers should have benefited from their bias towards smaller, higherrisk stocks.
However, managers were tripped up by their selection of sectors. They were underweight energy, financials and telecommunications —
the three S&P 500 sectors that generated the top total returns, each above 20 per cent, according to Bloomberg data.
Meanwhile, managers were overweight healthcare, which was the only one of the 11 main sectors to log a negative total return in 2016.
Active managers’ disappointing performance comes at a time when investors are shifting into less costly exchange traded funds that
track indices.
The global ETF industry notched up net inflows of $375bn, up from $348bn in 2015, according to data from BlackRock’s iShares unit.
Inflows into US ETFs were $288bn, up from $229bn in the previous year, and more than double the figure in 2010.
“There is likely more to go in the fund flows rotation where 65 per cent of US equity assets are still actively managed,” BofA said.
“Moreover, contrary to popular belief, we find no evidence that rising rates or increasing volatility have helped active funds’
performance.”
But the investment bank flagged several trends that could stoke a turnround for the industry, including more competitive fee
structures.
“The key to outperformance could be as simple as portfolio managers (and their bosses and clients) exercising patience,” BofA said.
“Lengthening time horizons may be paramount in a world driven by shorttermism.”
A potential softening of regulations under Donald Trump and a Republicancontrolled Congress could also be a boon to the asset
management industry, BofA noted.
Meanwhile, the S&P 500 and Dow Jones closed the day in the red, down 0.1 per cent to 2,269, and 0.2 per cent to 19,899.2,
respectively. The Nasdaq Composite gained 0.2 per cent to 5,487.9.
The US dollar came under heavy selling pressure, declining 1.3 per cent against a basket of six global currencies.
China’s offshore renminbi notched up its steepest twoday rise against the greenback on record.
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https://www.wsj.com/articles/indexes-beat-stock-pickers-even-over-15-years-1492039859
Index giant Vanguard pulled in a net $33 billion in February, $29.6 billion of which went into index products.
PHOTO: KRIS TRIPPLAAR/SIPA USA/ASSOCIATED PRESS
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12/5/22, 9:44 PM Actively Managed Mutual Funds Consistently Fail to Beat Markets, Study Finds - The New York Times
https://www.nytimes.com/2022/12/02/business/stock-market-index-
funds.html
STRATEGIES
Mutual Funds That Consistently Beat the Market? Not One

of 2,132.
No actively managed stock or bond funds outperformed the market convincingly and
regularly over the last five years. Index funds have generally been better.
By Jeff Sommer
Jeff Sommer is the author of Strategies, a weekly column on markets, finance and the economy.
Dec. 2, 2022 6 MI N READ
It’s very hard to beat the stock or bond markets with any regularity.
Each year, some investors manage to do it, of course, but can they do it consistently? A
new study of actively managed mutual funds by S&P Dow Jones Indices asked that
question and came up with a startling result.
It found that not a single mutual fund — not one — managed to beat its benchmark in
either the U.S. stock or bond markets regularly and convincingly over the last five years.
These results are even worse than those of 2014 and 2015, when I last examined this
subject closely.
“If you want to be adventurous and pick stocks or actively managed funds, go ahead, of
course,” Tim Edwards, global head of index investment strategy at S&P Dow Jones
Indices, said in an interview. “But understand the risks you are taking.”
These findings support practical advice that has been the academic consensus for
decades. Forget about trying to beat the odds and outsmarting everybody else. Instead,
use low-cost stock and bond index funds that mirror the overall market, and keep them
for decades. Don’t bother with fads or fancy market timing.
While it’s possible to beat index funds, it’s not easy to do over the long run, and as Paul
Samuelson, the first American to win the Nobel in economics said in the 1970s, it isn’t
worthwhile for most of us to try.
Yet especially in a year like this — when both the stock and bond markets have had
horrendous losses — it’s tempting to seek a better way. Why stick with index funds,
which merely match the market, and ensure that you have had what any sane person
would consider terrible results?
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Picking stocks and bonds on your own — or getting a professional to do it — may seem a
better way to go. But before you take that route, examine the latest evidence. It shows
that as bad as index funds have been, actively managed funds have generally been
worse.
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The Scorecards
For 20 years, S&P Dow Jones Indices has been providing “scorecards” that compare the
performance of active mutual fund managers with a series of benchmarks, or indexes,
that capture the broad stock and bond markets, or discrete pieces of them. Many mutual
funds and exchange-traded funds mirror these indexes, and a basic question for any
investment strategy is: Does it beat the index? S&P Dow Jones Indices also tabulates
how many funds beat the indexes persistently, year in and year out.
In a nutshell, these report cards have never been particularly good for actively managed
funds. The studies have found that most actively managed mutual funds do worse than
their benchmark index, both over the long run and in the vast majority of calendar years,
in the United States and elsewhere around the globe. For example, the last time the
average active U.S. stock fund beat the S&P 500 stock index for a full calendar year was
in 2009. And over a full 20-year period ending last December, fewer than 10 percent of
active U.S. stock funds managed to beat their benchmarks.
Still, every year, some actively managed funds do outperform the indexes. If you own one
that does, you may not care about all the others that fail to do so.
But then the issue is, will this outperformance persist? Another way of putting the
question is this: Are these funds beating the market because they are lucky or because
some investors are more skillful than others?
There is no absolutely correct, quantifiable answer to these questions. Some investors

are undoubtedly more knowledgeable than others and make better decisions. But are
they good enough to stay ahead of the market year after year, especially when fees and
expenses are included?
The most recent evidence isn’t encouraging.
You may think that it’s easier to beat the market when stocks and bonds are falling in
value. As it turns out, that’s not the case.
Lack of Persistence
Over the last five years, not a single mutual fund has beaten the market regularly, using
the definition that S&P Dow Jones Indices has employed for two decades.
The S&P Dow Jones team looked at all the 2,132 broad, actively managed domestic stock
mutual funds that had been operating for at least 12 months as of June 2018. (The study
excluded narrowly focused sector funds and leveraged funds that, essentially, used
borrowed money to magnify their returns.)
The team selected the 25 percent of the funds with the best performance over the 12
months through June 2018. Then the analysts asked how many of those funds remained
in the top quarter for the four succeeding 12-month periods through June 2022.
The answer was none.
Not a single one of the initial 2,132 funds managed to achieve top-quartile performance
for those five successive years. That hasn’t happened for stock funds since 2011. This
time, S&P Dow Jones Indices did the same measurements for fixed-income funds and
came up with the same result: zero. Not a single bond fund remained in the top quarter
for every 12-month period.
While scoring in the top 25 percent year after year is a fairly high hurdle, it strikes me as
a reasonable one. But S&P Dow Jones Indices also used an easier test. How many funds
ended up in the top 50 percent year after year over five years? For those 2,132 stock
funds, the answer was only 1 percent. That’s still a dismal result.
Consider a very big public school with more than 2,100 students in a class. Not all the
high performers will always score in the top 25 percent of their class, but I’d expect that
at least some of them would, every year, over five years. If not a single person managed
to do that, I’d wonder why. If only 1 percent — 21 of 2,100 — had better-than-average
performance every year over five years, I’d think that something was wrong with the
school or with the scores.
The Implications
Why did all the actively managed funds perform so badly in the S&P Dow Jones tests? In
an interview, Mr. Edwards said two things were going on.
“First, it’s always hard to consistently beat the market,” he said. “We’ve got two decades
that show that. Very few people can do that in the best of times.
“The more subtle thing is the fact that no one has been able to do it lately,” he continued.
“And what that shows is that whatever worked well for investors from, say, 2017 to 2021
just didn’t work in 2022, when the markets turned.” In other words, the markets are
efficient enough that it’s hard to be better than average for long, and when trends change
sharply as they did this year, nearly everyone is wrong-footed.
This is a classic reason for relying mainly on index funds — essentially, accepting overall
market returns, no better and no worse. Note that for the 20 years through June, the S&P
500 annually returned more than 9 percent, on average — which means your investment
doubled in value every eight years. That’s roughly what an index fund would have done
for you — and it’s better than the vast majority of actively managed funds were able to
do.
On the other hand, given this year’s losses in both stocks and bonds, it’s also clear that
investing in broad, diversified index funds is no panacea. These funds don’t protect you
when the market falls. And they have other major problems, which I’ll come back to in
other columns: They don’t allow you to vote directly on the policies of individual
companies, and they include within them companies that you may dislike or even abhor.
Some actively managed funds did better than the overall market over the last 15 or 20
years. Though they were unable to do so consistently year after year, they had good
stretches, and those periods were strong enough to make them outperform over the
entire span. Such funds may well be worth owning.
“Those that have managed to do that are impressive,” Mr. Edwards said. “But which
funds will be able to do it over the next 20 years?” Unfortunately, we don’t know.
That’s why cheap, broad index funds make sense as core investments for the long haul,
even in a year like this one, when the markets have been falling.
4/17/23, 8:05 PM Most Funds Couldn’t Beat the Stock Market in 2022, Despite Advantages - The New York Times
https://www.nytimes.com/2023/04/14/business/stock-market-
2022.html
STRATEGIES
With the Odds on Their Side, They Still Couldn’t Beat the
Market
In 2022, conditions were heavily in stock pickers’ favor, but most trailed the market. This
year looks worse, our columnist says.
By Jeff Sommer
Jeff Sommer is the author of Strategies, a weekly column on markets, finance and the economy.
April 14, 2023 5 MI N READ
It’s awfully hard to beat the stock market consistently. In 2022, despite many advantages,
most mutual funds couldn’t do it. There are important lessons in that failure for this year
and beyond.
Recall that the S&P 500 declined 19.4 percent last year. It was a miserable time for just
about anyone who held stocks, including those who merely tried to match the overall
market, as I do, using broadly diversified, low-cost index funds.
But beneath the market’s surface last year, there were plenty of opportunities that should
have given active stock pickers a competitive advantage over index funds. That’s
because the average stock did better than the overall market, which was heavily
influenced by a relative handful of “megacap” tech stocks like Alphabet (Google),
Amazon, Apple, Meta (Facebook), Microsoft, Nvidia and Tesla. These giants declined
sharply, but the rest of the market did markedly better.
That meant the odds actually favored stock pickers last year. They had plenty of
companies to choose from, any one of which would have given them a better performance
than the overall market. And, in fact, as a group, actively managed mutual funds fared
better against the overall market average than they have since 2009.
Even so, the average actively managed stock mutual fund failed to beat the S&P 500. In
an interview, Anu R. Ganti, senior director of index investment strategy at S&P Dow
Jones Indices, summarized that mediocre performance this way. “Actively managed
funds underperformed less badly in 2022 than they have in most years,” she said. “But
they still underperformed.”
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Tailwinds Helped, but Not Much

In some respects, the failure of actively managed mutual funds to beat the broad market
indexes last year is unsurprising. S&P Dow Jones Indices has been running systematic
comparisons of actively managed funds and passively managed funds — a.k.a. index
funds — since 2001.
These studies have consistently found that the vast majority of active fund managers just
can’t beat the indexes over 10- or 20-year periods, or in most individual years, either.
From 2010 through 2021, anywhere from 55 percent to 87 percent of actively managed
funds that invest in S&P 500 stocks couldn’t beat that benchmark in any given year.
Compared with that, the results for 2022 were cause for celebration: About 51 percent of
large-cap stock funds failed to beat the S&P 500.
Active managers couldn’t quite achieve what random chance would predict — that 50
percent of actively managed funds would beat the index.
In other words, their performance for 2022 looks slightly worse than the results of a
random coin flip.
That’s unimpressive, but it was much worse over longer periods. Consider these tallies
for funds that invest in S&P 500 stocks through the end of 2022:
Over three years, 74.3 percent of actively managed funds trailed the index.
Over five years, 86.5 percent underperformed.
Over 10 years, 91.4 percent underperformed.
Over 20 years, 94.8 percent underperformed.
As the numbers show, the longer you ran the horse race, the more actively managed
funds fell behind.
Over 20 years through April 11, the SPDR S&P 500 E.T.F. — one of the many mutual funds
and exchange-traded index funds that track the S&P 500 — returned nearly 10 percent,
annualized. The vast majority of active, stock-picking funds couldn’t match that.
The Odds Have Gotten Worse

When you look carefully at the results for 2022, the performance of actively managed
funds is much worse than it may seem at first glance, because it really wasn’t a coin flip.
For the stock market, 2022 was a special year. If there was any year in which stock
pickers should have been able to outperform the broad market indexes, 2022 was it, yet
most still couldn’t beat the battered stock market.
That augurs poorly for active managers in 2023 because, so far at least, the odds have
shifted.
Once again, consider “megacap” tech stocks, which had terrible performances last year
— much worse than the S&P 500 as a whole. The S&P 500 is a capitalization-weighted
index, which means that the most valuable stocks in the markets, like those from the big
tech companies, have an outsize effect on stock market returns. When they decline, the
overall index tends to decline. When they rise, the overall market tends to rise. Often the
market moves in lock step, with many stocks heading in the same direction.
But last year, the monthly “dispersion” of the S&P 500, which measures “the magnitude of
differences” in the returns of individual stocks in the index, was at its highest level since
2009. This means that there was more variation in stock returns, and most individual
stocks did much better than the megacap stocks. You can see this by comparing the
standard S&P 500 with an equal-weighted version, in which a stock like Dish Network,
with a market capitalization of less than $5 billion, has the same weight as a colossus like
Apple, with a market cap of well over $2 trillion.
In 2022, the equal-weighted S&P 500 outperformed the standard index by nearly seven
percentage points. That implies that if you just picked stocks randomly last year, you
should have done better than the overall index because the typical random stock did
better than the megacaps and better than the S&P 500. But most active managers
couldn’t do it.
Their chances are worse this year because the market so far has been very different.
Megacap stocks have been outperforming the average stock in the S&P 500 index, and
the equal-weighted version of the S&P 500 has been trailing the standard, cap-weighted
index. That implies that if you just pick stocks randomly, odds are that you will trail the
overall stock market this year.
And, in fact, preliminary tallies by Bank of America show that in a horse race between
active large-cap mutual fund managers and the S&P 500 this year, the active managers
have been clobbered. Only 45 percent of active large-cap stock managers have matched
the performance of the S&P 500. Stock pickers are doing better in some corners of the
market, but for the most part, it’s a dismal picture
Improving Your Chances

It’s definitely possible to beat the stock market. A small number of people will probably to
do it over the next 20 years. But I don’t know now who those outliers will be. Similarly, I
don’t know the precise direction of the economy or of inflation or of the Federal Reserve’s
interest rate policies or of a host of other monumentally important factors. No one else
knows, either.
That’s why I think it makes sense to embrace humility, accept my limitations and use low-
cost index funds to try to match the returns of the stock and bond markets over the long
run.
To do that, and to withstand the wrenching shifts in the markets that will surely come, I’ll
need enough cash on hand to pay the bills first. Money-market funds and high-yield,
federally insured savings accounts and certificates of deposit are reasonable options for
that purpose.
Make your own choice. Some active stock pickers will beat the market averages this year.
But based on history, I think it’s virtually certain that the vast majority won’t manage to
do it over the next 20 years.
Because I’m trying to improve my odds while investing for the long haul, I’m aiming for
an absolutely average performance.
8/9/2019 Few funds sold to retail investors beat benchmark after fees | Financial Times
FTfm Investing in funds

Few funds sold to retail investors beat benchmark after fees
Italian consultancy Prometeia say managers do not take enough active risk
A quarter of products face a near impossible challenge to deliver
Chris Flood MAY 13, 2018
Less than one in five of the funds sold to retail investors in Europe in the past three years
outperformed their benchmark after fees were taken into account, says research by Prometeia.
The Italian consultancy examined the three-year record of 2,500 equity, bond and money
market funds, with combined assets of €1.8tn, and found that only 18 per cent beat their
benchmark. Absolute return, target date and alternative mutual funds were excluded from the
analysis.
Claudio Bocci, head of the asset management advisory team at Prometeia, said: “Many
managers are unable to compensate for fees because they are not taking enough active risk, so
they are very unlikely to beat their benchmark. This is a structural problem”.
Performance records suggest that many fund managers struggle to deliver consistent success.
Half the top-ranked managers of global and European equities, global bond and flexible
balanced funds, measured by returns over three years, drop out of the top performance decile
over the following 12 months.
Huge gaps also exist between the best and worst managers across all fund types, complicating
the decisions facing retail investors.
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8/9/2019 Few funds sold to retail investors beat benchmark after fees | Financial Times
Mr Bocci said there was widespread misalignment between the fee structures and expected
returns of many funds sold to retail investors in Europe.
Prometeia estimated that up to a quarter of the funds (mainly bond and money market
products) sold to retail investors faced a near-impossible challenge in delivering above-
benchmark returns net of fees.
“Some of these conservative funds have close to a 100 per cent probability that they will fail to
beat their benchmark because of costs. This is not a sustainable position,” said Mr Bocci.
Prometeia’s findings echo criticism by the European Commission, which last month highlighted
large variations in the cost of investment products and the quality of advice provided to retail
investors across Europe.
Many politicians want to redirect huge savings that remain locked in low-yielding bank accounts
into useful investments. This task has been made difficult by the failure of financial product
providers to give clear information to investors, especially the less financially literate, about fees
and charges.
“Today, an average consumer is overwhelmed by the sheer complexity and uncertainty

associated with investment products. Most households do not invest at all in capital markets or
do so very infrequently across their lifetime” said the commission.
Regulators have introduced rules, known as Mifid II, to try to improve transparency. Some fund
distributors, private banks, wealth managers and financial advisory firms are cutting their
catalogues to ensure they provide suitable products to clients, as required under Mifid.
Fund selectors in Europe have on average 38 distribution partners, down from 42 in 2014,
according to MackayWilliams, a London consultancy.
“We are likely to see further shrinkage, particularly from the largest bank distributors. Some are
placing more business in house but most are reducing their buy lists simply to ease the
bureaucracy that Mifid has imposed on them,” said Diana Mackay, co-chief executive.
Mr Bocci said he expected further rationalisation of fund selectors’ catalogues as Mifid II would
encourage them to use more high-quality products.
He added that just a fifth of the 3,700 fund share classes sold to retail investors in Europe could
be judged as high quality, according to Prometeia’s assessment based on returns, risks, and
performance persistence measured over different timespans.
FT CFO Dialogues
London
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8/6/2019 European active managers beaten by passives, 10-year study finds | Financial Times
FTfm Fund management

European active managers beaten by passives, 10-year study finds
The study is the latest research to have found that active fund managers repeatedly fail to beat benchmarks © Whyframeshot/Dreamstime
Attracta Mooney OCTOBER 1, 2018
The skills of asset managers who try to beat the market are in question after research found that
active funds in Europe have repeatedly failed to outperform index trackers in the past 10 years.
Most active fund managers survived and beat their average passive peers in just two of the 49
fund categories, according to an analysis by Morningstar, the data provider, covering June 2008
to June 2018.
The study — which included 9,400 European-domiciled active and passive funds with €2.9tn in
assets — also found that fewer than a quarter of active managers beat their passive counterparts
over 10 years in more than half of the fund categories examined.
Mick McAteer, co-director at the Financial Inclusion Centre, a policy and research group, said
the research confirmed that investors “are paying a price for poor long-term performance from
high charging active managers”.
“The evidence is overwhelming that, far from adding value, large parts of the fund management
industry are inefficient and extract huge value from investors’ funds,” he said.
“We’re not going to see the improvements needed in this market without serious regulatory
reform.”
The Morningstar research evaluated active funds against a composite of passive funds, rather
than a costless index. Morningstar said this meant the benchmark reflected the net-of-fee
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8/6/2019 European active managers beaten by passives, 10-year study finds | Financial Times
performance of passive funds.
The study is the latest in a growing body of research that has found that active fund managers
repeatedly fail to beat benchmarks. Research in 2016 by S&P Dow Jones, the index provider,
found that 99 per cent of actively managed US equity funds underperformed.
Arnaud Cosserat, chief executive of Comgest, the French asset manager, said the odds of active
managers outperforming were low because it is “extremely hard to be smarter than the
collective intelligence of thousands [or] millions of other market participants”.
He did, however, question whether the stockpickers examined in the study were truly active
managers or simply “closet trackers” — a portfolio manager who closely follows the benchmark
despite charging higher fees. He said closet trackers would always struggle to beat passive funds
but truly active funds stood a better chance.
“When [a fund] is very active, it is more likely to generate alpha,” he said. Mr Cosserat added
that active fund management also played an important role in risk management and in
allocating capital.
The passive fund industry has grown rapidly in recent years amid widespread criticism that
active managers are charging investors high fees for poor performance. Passive funds, which
typically offer a cheaper way to invest, grew 4.5 times faster than the active management
industry in 2016.
Regulators across Europe have also turned their attention to active funds, looking at the value
they offer investors. Last year, the European Securities and Markets Authority said it planned to
carry out further work on closet tracking amid growing concern that a form of mis-selling was
taking place.
The Morningstar study found that active managers did better than passive managers in some
categories, including when investing in mid-size UK companies. Stockpickers who invested in
Norwegian equities also beat their passive counterparts.
Dimitar Boyadzhiev, an analyst covering passive strategies at Morningstar, said that if an

investor had chosen a passive fund manager 10 years ago they would have typically enjoyed
“very high success” compared with those who opted for an active manager.
“For the majority of categories, it seems like passive is the way to go,” he said, adding that
investors needed to choose carefully in order to find a good active manager.
George Cooper, chief investment officer at Equitile, the UK asset manager, said that when
measured against market performance, investment management “is basically a zero-sum game,
so for every winner there is an equal and opposite loser”.
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4/20/23, 6:33 AM Active European funds deliver worst returns in more than 20 years | Financial Times
ETF Hub Passive Investing

Active European funds deliver worst returns in more than 20 years
UBS analysis for 2022 shows vehicles in aggregate delivered -4.13% of alpha after fees
The performance was in contrast to 2020, the last ‘volatile equity year’, when alpha generation among active equity managers
reached a 20-year high © AFP via Getty Images
Alf Wilkinson, Ignites Europe APRIL 17 2023
Latest news on ETFs

Visit our ETF Hub to find out more and to explore our in-depth data and
comparison tools
Actively managed equity funds in Europe had their worst year of

underperformance for more than two decades in 2022, according to analysts at
UBS.
In a research note on European asset managers, the analysts wrote that active
equity funds domiciled in Europe generated, in aggregate, -4.13 per cent of alpha
last year after management fees, the poorest annual result since their analysis
began in 2000. Alpha can be defined as any outperformance, or in this case
underperformance, of the market.
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4/20/23, 6:33 AM Active European funds deliver worst returns in more than 20 years | Financial Times
The research analysts added that, amid the volatile environment that characterised
2022, they “would have expected active equity managers to have benefited from
attractive alpha opportunities”.
The analysts draw a comparison to 2020, the last “volatile equity year”, when alpha
generation among active equity managers reached a 20-year high.
In 2022, active equity funds in Europe had

their worst spell of performance in the first
half of the year, when 96 per cent of the
This article was previously equity fund underperformance was logged,
published by Ignites Europe, a according to the report. Two-thirds of the
title owned by the FT Group. underperformance came in the first quarter
alone.
“We think this was driven by the strong

rotation away from growth assets as a higher interest rate environment had a
disproportionately large impact on their terminal values,” UBS analysts Michael
Werner and Amit Jagadeesh wrote.
They also believe the underperformance can be partly explained by “benchmark

selection”, as several funds displayed “a mismatch between their underlying
strategy and their primary benchmark index choice”.
The analysts pointed to Morningstar’s UK Equity Mid/Small Cap category, which

was the group of funds/product variety to record the lowest level of alpha
generation on average in 2022.
The FTSE 250 index “significantly underperformed” the FTSE 100, which
benefited from exposure to large-cap banks and commodity-related names, so
funds in this category that selected the FTSE All Share as its index suffered from
sharp underperformance — minus 11.2 per cent on average — while the funds that
opted for a small and mid-cap index recorded average underperformance of 4.4.
per cent.
Meanwhile, among fixed income funds, excess returns were negative but “not out
of the ordinary”, UBS found.
Active fixed income funds underperformed by -0.46 per cent in 2022, which was
their worst year for alpha generation since 2018 but “in line” with the average
between 2000 and 2022, excluding 2008, the analysts wrote.
The negative alpha for fixed income funds was concentrated in the second quarter
of the year, which was mitigated by positive alpha generated in the fourth quarter.
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5/11/2018 Active bond funds fail to beat benchmark after fees
FTfm Bonds Industry

Active bond funds fail to beat benchmark after fees
Charges wipe out outperformance by average fixed income managers, says Morningstar
© FT montage; Getty Images; Charlie Bibby

Jennifer Thompson MAY 9, 2018
Actively managed bond funds rarely beat their benchmark once fees are factored in with the
majority “priced to fail” according to a new study, calling into question how much value fund
managers provide fixed income investors.
The average fixed income manager was able to beat a benchmark in some instances but this
outperformance was wiped out once fees were taken into account according to Morningstar,
which examined 5,133 funds across Europe, Asia, Africa and the US between January 2002 and
October 2017.
“Unfortunately, most bond funds are ‘priced to fail’: their fixed fees are in line with, or
sometimes even above, their historical margin of gross-of-fees outperformance, thereby
negating or even destroying the value added by managers,” analysts at Morningstar said. “This
is not entirely surprising, but it powerfully demonstrates the extent to which fees weigh on
funds’ success.”
Even on a gross basis performance was mixed. The research group divided the 5,133 funds into
25 categories, such as emerging market debt and US dollar denominated corporate bonds, with
the average manager outperforming on a gross basis in only 13 of these. In all 25 categories the
average manager underperformed the benchmark after fees were taken into account.
The report adds to a growing pool of research shining a harsh spotlight on fees in the industry
and calling into question the value of active management.
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5/11/2018 Active bond funds fail to beat benchmark after fees
For instance, active managers working for pension fund clients beat the market by 60 basis
points according to a recent analysis by CEM Benchmarking for FTfm, but the majority of this
was subsequently swallowed by costs.
Alan Miller, chief investment officer of SCM Direct and an advocate for greater transparency in
fees, said the findings underscored the need for better disclosure on costs.
“You’ve got so many bonds with low yields [that] by the time you’ve applied various fees and
charges, how can that fund return any total return to investors?” he said.
Fixed income managers are also grappling with the prospect of a 36-year bond bull market
coming to an end as the biggest central banks unwind their quantitative easing programmes, as
well as a global shift in favour of passive products.
“In benchmark-driven categories, costs have on balance a greater impact on net return than
does manager skill, making the case for low-cost investments be they active or passive,” said
Mara Dobrescu, associate director at Morningstar. But the research group stopped short of an
unqualified endorsement for index tracking products. In some instances managers could still
add value “provided that fees are reasonable”.
As well as fees, factors weighing on the net return of bond funds include the need to rebalance
portfolios every month, which results in increased transaction costs, as well as persistently low
global interest rates, which has depressed performance in the sector more generally.
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8/11/2020 Can active fund managers deliver higher returns than ETFs? | Financial Times
Exchange traded funds

Can active fund managers deliver higher returns than ETFs?
Despite the lure of beating the index, for every winner there is a loser and higher costs can erode gains
In most markets it is hard to identify the potential fall guys © JEON HEON-KYUN/EPA-EFE/Shutterstock
Steve Johnson AUGUST 4 2020
One of the most important decisions an investor can make is whether to invest
with active or passive fund managers, or a combination of the two.
Active fund managers choose their investments in an attempt to beat the index
they are benchmarked against, such as the FTSE 100 or S&P 500. Passive funds do
not; they are content merely to replicate the overall gains and losses of an index.
The attractions of active investing

Many investment novices conclude that the active route is the obvious one to take.
They might assume that they will be in safe hands because fund managers are
intelligent people who are supported by a phalanx of analysts. Those experts will
be doing the grunt work of examining companies in detail, determining what they
are worth and therefore whether they are currently over- or under-valued.
Many fund groups also deploy complex quantitative investment strategies to model
financial markets. Others will employ analysts and economists to examine the
macroeconomic landscape, providing still more insights that the fund manager can
use to help determine what fund managers believe is the “fair value” of equities,
bonds and other assets.
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Moreover, some managers and analysts meet senior executives of hundreds of

companies every year to gather further insights to feed into the decision-making
process.
Given all these advantages, surely active funds are likely to beat the index they are
benchmarked against?
Pitfalls of the active approach

While an investor who goes down the active fund route may indeed get lucky and
make a lot of money, long-term data suggest most of those who trust their money
to active managers will end up worse off than if they had invested in passive
vehicles such as ETFs.
The underlying truth is that, with a small number of exceptions, the index return is
the average return of all investors in that particular market. This means that even
as one fund manager beats the index, some other active investor must fall short. In
this simplified version of what is known as a “zero-sum” game, every dollar of
outperformance must be equalled by a dollar of underperformance.
It is possible for active fund managers as a whole to beat an index but, if they do so,
it means some other market participants must systematically underperform.
Can active investors ever win?

Some proponents of active investing claim this is possible. For instance, the foreign
exchange market is by definition a zero-sum game because currencies are valued
against each other in the form of a ratio. If the dollar has risen against the euro, the
euro must have fallen against the dollar.
However, there are plausible arguments that some actors, such as central banks
and companies hedging foreign exposures are “non profit maximisers” — ie they
are not attempting to make a profit by trading, but are meeting some other policy
objective — a tendency that profit-seeking active managers can potentially exploit.
However, in most markets it is harder to identify the potential fall guys. Some
observers claim the majority of losers are retail investors who do their own
stockpicking and who may be less well informed. But these people account for an
ever smaller share of stock market ownership — since 1963 the proportion of UK
shares held by individual investors has plummeted from 63 per cent to 13.5 per
cent as of 2018, according to the Office for National Statistics.
The effect of higher costs
Even if active fund managers are on the winning side, investors face a further risk
when placing their funds with them, because while the average performance of all
active investors must, by definition, be that of the index, we are talking in gross
terms — that is, before fees and other costs are taken into account.
Fund managers levy an annual management charge and there are other costs on
top such as the cost of buying and selling securities and fees paid to auditors and
custodians.
Even if these costs are only 1 per cent a year, that drag on performance will soon
compound over time.
The result is that passive funds such as ETFs — which tend to charge lower fees
and have lower total expense ratios, or costs, than actively managed investment
funds — are more likely to deliver higher returns, even though they too will also
tend to underperform their benchmark indices in net terms.
Warren Buffett, considered by many as one of the great investment sages of our
time, acknowledged this truth when he said in 2014 that his will contained
instructions for his wife to invest 90 per cent of the money he leaves her in a low-
cost S&P 500 index fund, with the balance in government bonds.
Other factors to consider
As ever, life is messy and some caveats apply. There are some cases where active
investors as a whole can outperform (as well as underperform) their benchmark
for no reason except that the index is not a good representation of the underlying
asset class.
Jan Dehn, head of research at Ashmore Investment Management, points out that
only 1.9 per cent of emerging market local currency corporate bonds are included
in the sector’s flagship index, while the most widely followed index of EM local
currency sovereign debt contains just 13.4 per cent of such instruments. Egregious
anomalies of this nature are far less commonplace in the world of equities,
however.
And, of course, some active managers do succeed in producing long-term

outperformance even when their fees are taken into account. Theory suggests a
small number should be able to consistently beat the market purely by chance, but
it may be that a small number of individuals are genuinely doing something
different that gives them a long-term edge. If so, that edge may not last. Neil
Woodford was widely regarded as one of the UK’s star managers for decades, until
his flagship fund spectacularly imploded last year.
As more investors have come to understand the power of passive investing, the
strategy has become wildly popular. The US led this trend and last September
Morningstar reported that more passive money ($4.27tn) was now tracking the
broad US equity market indices than actively managed money ($4.25tn).
Globally, the volume of assets in index funds has jumped from $2.3tn in 2010 to
$10tn, according to Morningstar data.
In the long run, if passive investment continues to expand, it will create problems
of its own, in terms of price discovery and capital allocation. That is a story for
another day, though.
12/9/2020 Active fund investors earn higher returns for tolerating underperformance | Financial Times
Investments
Active fund investors earn higher returns for tolerating underperformance
Research suggests it pays to be patient as even the top active funds have long periods of undershooting
the market
© Timothy A.Clary/AFP/Getty
Madison Darbyshire DECEMBER 4 2020
Investors looking to outperform the market by putting money into actively

managed funds must tolerate longer periods of decline than most are prepared to
weather in the hunt for return.
More than 80 per cent of outperforming active funds in the US spent at least one
five-year period in the bottom 25 per cent of funds for performance, new research
from Vanguard shows.
“Over any 10-year window, you should expect an active manager to underperform
[in] three or more years,” said Christopher Tidmore, co-author of the study and
investment strategist at Vanguard. “What you’re going to experience is more
volatile than you think.”
Investors have limited tolerance for underperformance, especially when it is

significant, frequent or over long periods. But selling at the bottom crystallises
losses, sometimes before an active strategy has had the chance to mature.
“There’s a lot of talk about how much patience you need with the market, but for
investors interested in active investing, you need patience not just with the strategy
but also with the manager,” Mr Tidmore said.
https://www.ft.com/content/f7a61136-858a-408f-b057-0c320843c8d6 1/3
Just under three-quarters of UK investors’ assets are held in actively managed

funds, compared with 26 per cent in passive, according to Morningstar data as of
October. In the US, only 59 per cent of investor assets were held in active funds.
All but one active fund underperformed at some point for a three-year period,
according to the research, which was based on analysis of around 1,173 US
managed funds. It selected those that were currently outperforming, more than 10
years old and operational in the past 25 years. This is about 40 per cent of the US
managed funds market.
And though some funds underperform their

benchmarks frequently, or for longer
Over 20 years with stretches of time — others underperform
compounding, 1 per dramatically. More than half of funds — 50
cent adds up to a lot of to 60 per cent — underperformed their
money benchmark by more than 20 per cent,
before becoming long-term outperformers.
Christopher Tidmore, Vanguard
According to Vanguard, the average

annualised return for active funds was
about 1 per cent above the benchmark. “We talk in percentages but investors talk
in dollars. Over 20 years with compounding, 1 per cent adds up to a lot of money,”
Mr Tidmore said. “If you have the patience it can really add up to significant
difference in outcomes.”
However, investors’ unwillingness to accept significant periods of

underperformance is reinforced by industry marketing. “We tell people that
investment is a long-term proposition, but we publish one month, three month, six
month performance data on our fact sheets . . . so we contradict ourselves with the
message we send to investors,” said Ryan Hughes, head of active portfolios at UK
investment platform AJ Bell.
“You should never buy an active manager unless you fully accept they will go
through a long period of underperformance . . . It’s not the greatest marketing
message, but it’s the reality,” he said.
An abundance of data has given people more ways to dissect performance and
more awareness of short-term downturns than they had 30 years ago, when they
were notified about their investment performance by letter once a year, or were
obliged to consult the financial pages.
“If you have a well-diversified portfolio you want parts of it to underperform

because it means at other times they will outperform,” said Emma Wall,
investment analyst at Hargreaves Lansdown. “Certain styles go in and out of favour
and that’s important for investors to understand.”
The disconnect between reality and expectations of underperformance also affect

the managers themselves. “Ninety per cent of institutional asset allocators were
looking to replace their managers after two years of underperformance,” Mr
Tidmore said.
The study had limitations, he added. “The one thing we did not look at is how
much patience should you have — when you should no longer be patient — when
should we bail. There was no pattern.”
8/7/2018 These Hedge Funds Are Doing Great but Don’t Want Your Money - WSJ
Nikkei 22652.65 0.65% ▲ Hang Seng 28091.94 0.98% ▲ U.S. 10 Yr -0 32 Yield 2.945% ▼
https://www.wsj.com/articles/these-hedge-funds-are-doing-great-but-dont-want-your-money-1532869201
HEDGE FUNDS
These Hedge Funds Are Doing Great but

Don’t Want Your Money
Investors who can’t get into high-return exclusive funds are opting for the next best thing
Igor Tulchinsky, founder of WorldQuant LLC, is seen at a conference in Beverly Hills, Calif., in May. Last month, his irm raised
$2.3 billion for its irst hedge fund available to outside clients, one of the largest fund launches in recent years. PHOTO: DANIA
MAXWELL BLOOMBERG NEWS
By Gregory Zuckerman
July 29, 2018 9 00 a.m. ET
All the money in the world can’t get you into some of the world’s best hedge funds.
Multibillion-dollar funds operated by Renaissance Technologies LLC, PDT Partners,

WorldQuant LLC, Two Sigma Investments LP and other computer-driven “quant” firms have
generated market-beating returns for years, according to people close to the firms, sparking
heated investor interest. Renaissance’s Medallion fund, for example, has averaged annual gains
of more than 35% since 1990, and was up about 10% this year through July 20, the people say.
There is a catch, however.
These funds are generally available only to employees, early clients and a few lucky others, part
of an effort to limit their size and keep them nimble enough to continue racking up gains. For
https://www.wsj.com/articles/these-hedge-funds-are-doing-great-but-dont-want-your-money-1532869201 1/4
pension funds, endowments and other big investors, being shut out of these exclusive funds is a
bit like peering into a hot nightclub that allows only VIPs inside.
As a result, these investors are left with two options.
They can invest in the hundreds of hedge funds that are less appealing than ever as the industry
struggles with another year of middling returns. Or they can invest in the “open” funds of these
successful managers. The results of these open funds generally aren’t as strong as the
exclusive, employee funds, and they can carry an array of potential conflicts, investors say.
Despite the drawbacks, investors have been choosing this option en masse, making these
outside funds among the hottest products on Wall Street.
“It’s a big challenge,” says Theodore Liu, director of investment research at Silver Creek Capital
Management, a Seattle firm that invests in hedge funds for clients and has put money in funds
operated by some of these firms. “Do you wait and keep begging” to get into the
exclusive, proprietary funds, or “do you invest in their A-minus product that may still be very
good.”
All kinds of investors have shifted to these outside funds, including Blackstone Group ’s
BX 0.77% ▲ Blackstone Alternative Asset Management, one of the largest investors in global
hedge funds, as well as smaller firms, according to people close to the matter.
Last month, Igor Tulchinsky’s WorldQuant raised $2.3 billion for its first hedge fund available
to outside clients, one of the largest fund launches in recent years. For the past 11 years, the
quantitative investment firm has quietly generated strong returns investing billions of dollars
for a single client, Israel Englander’s $35.3 billion hedge fund Millennium Management LLC.
WorldQuant will continue to invest for Millennium, even as it operates the new fund for
outsiders.
Renaissance co-founder James Simons, pictured at the 2011 World Science Festival in New York, has raised more than $15
billion over the past two-and-a-half years for his irm’s outside funds. PHOTO: AMANDA GORDON BLOOMBERG NEWS
Renaissance, founded by former cryptographer James Simons, has raised more than $15 billion
over the past 2½ years for its own outside funds, helping Renaissance top $57 billion in total
assets, investors say, up from $27 billion in 2015. Renaissance began these funds in 2005, well
after the firm closed its Medallion fund to outsiders in 1993 and pushed them out of the fund,
leaving just the firm’s employees as investors.
The Renaissance outside funds have beaten the market, though they haven’t done nearly as well
as Medallion, which manages about $10 billion. The $24 billion Renaissance Institutional
Equities, for example, was up 4.9% through July 20, topping a gain of 1.2% for the average hedge
fund, according to HFR. Last year, the fund gained 15.2%, besting the 8.6% gain for the average
hedge fund.
Two Sigma’s outside hedge funds have had mixed results so far this year, with most flat or up
about 5%, investors say. Two Sigma manages $54 billion, up from $5 billion in 2010, thanks in
part to surging interest in its own outside funds.
Some investors are skeptical about funds run by firms that also manage internal funds,
especially if they pursue similar strategies.
Amanda Haynes-Dale, co-founder of Pan Reliance Capital Advisors, says she is worried that
firms may be tempted to place their best investments in the exclusive funds before allocating to
the public funds. In one example of how that would hurt the public fund, a firm buying Facebook
shares throughout the day may put the cheapest shares in an internal fund and shares
purchased at higher prices in the public fund. Ms. Haynes-Dale says investors also need to be
vigilant that public funds don’t bear the brunt of general expenses racked up by the firm.
“My first question is about securities selection,” she says. “I’d be bothered if I was receiving
less favorable pricing and proportionally fewer shares of ‘hot issues’ that can turbocharge
returns.”
After big European hedge fund BlueCrest Capital Management launched an internal fund for its
partners in 2011, it saw much better returns compared with funds BlueCrest offered to
outsiders, investors say. Advisory firm Albourne Partners Ltd. raised questions about how the
fund was run. Eventually, BlueCrest closed its outside funds, and now the firm’s founder,
Michael Platt, runs a fund trading his own money. Mr. Platt declined to comment.
Quant firms such as Two Sigma generally have algorithms that automatically generate and fill
trade orders without knowing how the shares will be allocated, which can avoid the risk of
prioritizing the internal fund, investors say.
The quant firms also sometimes have internal funds that trade in different ways than their
outside funds, which can reassure investors worried about conflicts. Renaissance, for instance,
uses less leverage, or borrowed money, in its public funds, while also holding on to securities
for longer periods than it does with the Medallion fund.
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com

5/14/2019 In Tough Times for Hedge Funds, These Are the Ones That Stand Out - WSJ
https://www.wsj.com/articles/in-tough-times-for-hedge-funds-these-are-the-ones-that-stand-out-11557108360
JOURNAL REPORTS: FUNDS ETFS
In Tough Times for Hedge Funds, These Are

the Ones That Stand Out
The hedge-fund industry has trailed the market for 10 straight years, but our review shows that many
smaller funds are doing well
Some smaller hedge funds are dealing expertly—in several cases beating the larger players during the past ive years. PHOTO:
NICOLAS ORTEGA
By Eric Uhlfelder
May 5, 2019 10 06 p.m. ET
The hedge-fund industry continued its losing streak last year.
The industry once again trailed the market in 2018, marking 10 straight years it has
underperformed the S&P 500, according to data from BarclayHedge.
But the general decline has masked a more complicated truth.
My recent review identified hedge funds—private investment partnerships designed for

wealthy individuals and institutional investors—that have managed to outpace the market not
https://www.wsj.com/articles/in-tough-times-for-hedge-funds-these-are-the-ones-that-stand-out-11557108360 1/7
only last year but over much longer periods. One of the
JOURNAL REPORT findings was a link between fund size and long-term
performance.
Insights from The Experts
Read more at WSJ.com/FundsETFs But not the way many may think. Smaller funds often
do better.
MORE IN INVESTING IN FUNDS & ETFS
Some large, venerable managers certainly are still
Target-Date Funds, 10 Years Later doing well, including Renaissance Technologies’ $27.1
Fund Fees Still Vary Too Much billion equity fund (up 15.34% based on trailing five-
How Much Cash in Retirement? year net annualized returns); the $18 billion global
U.S.-Stock Funds Rose 3.6% in April macro fund Element Capital (up 13.28%), which targets
529s or Coverdells for College? investments triggered by shifts in key economic
indicators; and Citadel’s $19.3 billion Wellington
multistrategy fund (up 11.86%). All those returns since the beginning of 2014 are well above the
market’s annualized gain of 8.49% over the same period.
Still, of the 60 established diversified funds in the review with the best five-year returns,
more than half are managing less than $1 billion.
I
MMCAP out of Toronto, for example, has $621 million in assets but has generated returns
of nearly 28% a year since the beginning of 2014. The fund’s “event driven” strategy
typically seeks out opportunities related to events like mergers and corporate structure,
and also engages in private investments.
Hong Kong-based KS Asia Absolute Return, a $720 million multistrategy fund, is delivering
annualized returns of more than 20%. New York-domiciled MAK One ($458 million), which
targets distressed credit and equity opportunities, has been realizing returns of nearly
19.5% over the past five years.
The managers of these three funds declined to be interviewed for this article. But a co-
manager of another of the smaller funds, Amin Nathoo at the $354 million hedged-equity
Anson Investments Master Fund, says, “We’re able to more quickly respond and profit
from opportunities across all segments of the market than much larger funds that can’t
establish sufficient exposure in smaller-cap shares.”
Anson returned more than 19% last year and has racked up net annualized gains of 11.8%
since its launch in July 2007, compared with 6.8% for the S&P 500.
The 60 funds reviewed were filtered from thousands that report to three databases of
hedge funds that met four criteria: broad investment strategies only (i.e., no country,
sector or industry funds and/or leveraged versions of core funds), a minimum of $300
million in assets, performance history of at least five years and gains of at least 5% in 2018.
The last parameter was applied because 2018 was the first year in a decade that the S&P 500
lost money, and hedge funds faced criticism that they aren’t truly hedges.
‘Structured’ stands tall

The review’s top-performing strategy is structured credit. Representing one-quarter of the 60
funds, structured credit involves pools of debt obligations that generate cash flows supporting
various slices, or tranches, that vary from investment-grade to non-investment-grade and
equity. They each come with distinct risks and yields.
Though the strategy dates back well before 2008, the vast majority of extant structured-credit
funds came into being after the financial crisis, in large part due to regulations that now
prevent banks and insurance companies from holding non-investment-grade and unrated
tranches of structured credits. Most managers target mispricing in these tranches.
Hudson Cove Credit Opportunity Chief Investment Officer David Wu argues the strategy’s rally
since the end of the financial crisis will likely continue for a while. Unlike what happened to
mortgage securities a decade ago, Mr. Wu sees much better underwriting, less-leveraged
consumers and corporations, and lower default rates. But he believes managers must proceed
with caution as the rally moves into a second decade.
There is concern that an increasing number of fund managers piling into and expanding their
presence in this area could drive questionable securitizations to meet their demand. But it’s
possible to see where underwriting standards may be slipping, says Clay Degiacinto, CIO of
Axonic Credit Opportunities, by looking at the loans that make up a securitization,
He also says performance can likely be sustained by steering clear of credits backed by student
loans and subprime auto loans along with collateralized loan obligations, and newly issued
residential and commercial mortgage-backed securities.
More-traditional credit funds accounted for 13 spots in the review of 60 funds, with strategies
ranging from long/short and opportunistic to distressed and relative value, which targets
mispricing between related securities.
Multistrategy success
Multistrategy funds, which have perennially underperformed in the hedge-fund industry, had
eight funds on the list—the third most of any strategy, tied with equity funds.
Segantii Asia-Pacific Equity Multi-Strategy focuses on relative value and opportunistic trades
that have helped the fund deliver annualized returns of 17.6% over the past five years. Chief
Executive Kurt Ersoy says the fund excelled last year by having low market exposure and with
further downside protection provided by shorting indexes toward the end of the year when
investors were dumping positions. This selloff in turn created investment opportunities when
selling pressures subsided.
For the rest of 2019, Mr. Ersoy sees renewed investor interest in China driven by continued
capital-market overhauls; the country’s “A” shares joining the MSCI Emerging Market Index;
and renewed government stimulus.
PH&N’s Hanif Mamdani says the Fed’s U-turn has bought the bull market more time, but investors should be cautious. PHOTO:
BEN NELMS BLOOMBERG NEWS
He also anticipates the multiyear expansion of corporate activity across North Asia (including
Hong Kong/China, Taiwan, Japan and Korea) will likely fuel compelling relative value and
event-driven opportunities.
“All the things that worried the market

RELATED in the fourth quarter last year are still
with us,” says Hanif Mamdani, manager
What to Consider Before Investing in a Hedge Fund (February 2019)
of the PH&N Absolute Return fund,
which was up 10.4% over the past five
years. While he thinks the Fed’s U-turn on raising interest rates has bought the bull market a
few more quarters, he says investors need to cautiously diversify beyond securities that have
been performing well.
He cites historical research showing the most difficult credit markets come in situations similar
to the one we’re in now, when central banks pause rate increases and start considering
reversing policy. When this factor is combined with a long rally and various macro concerns
ranging from slowing economic growth to expanding trade conflicts, it compels Mr. Mamdani
to become more defensive.
Macro managers
The fourth-largest strategy on the list, global macro, is market agnostic. Managers make long
and short bets on key economic gauges, including interest rates and currencies, stock and bond
indexes, and commodities. Six such funds made the review of 60 funds.
What many macro managers see from their high vantage point is giving them pause. Said
Haidar, whose fund Haidar Jupiter gained nearly 11% since January 2014, notes there is “weak
data coming in globally, involving auto sales, shipping numbers, machine orders and factory
output, and the bond market is recognizing this risk more than equities.” Mr. Haidar’s three
largest fears: escalating trade wars, a hard Brexit and Italy deciding to leave the euro.
***
Portfolio data that help explain the quality of performance include worse drawdown since 2014
—the maximum decline that funds experienced during this time—as well as their five-year
Sharpe ratios, a measure of how much risk investors experienced to achieve realized returns.
A large majority of the 60 funds reviewed had low to moderate volatility, limited drawdown and
attractive risk-adjusted returns. On average, these funds had risk characteristics superior to
the S&P 500 while delivering superior returns over the past one-, three- and five-year periods.
Also reviewed was funds’ performances since inception, a measure of the consistency of their
managers. The measure also shows the managers’ ability to excel across a full market cycle,
since about one-third of the funds were launched before the financial crisis. The results were
strong: The historical annualized returns of all 60 funds was nearly 13% since inception.
Overall, many of these managers share common traits. According to Oliver Newton, head of
portfolios at the $85 billion alternative-asset adviser Aksia, such characteristics include “being
experienced, astute observers of markets and investor behavior, willingness to challenge
convention and think outside the box, commitment to their convictions, and having operations
and investor base that support their style of investment.”
REVIEW METHODOLOGY
Only broader hedge-fund strategies were considered, to discern performance that is linked
with manager skills. Funds had to be at least $300 million to help ensure quality of underlying
operations. Data was then merged from industry databases, including BarlcayHedge, Preqin
and Morningstar. Their numbers are received directly from hedge-fund managers. Virtually all
funds that made the list then affirmed the accuracy of this data.
All funds on this list that have a presence in the U.S. must report to the SEC. Further, Sol
Waksman, who founded BarclayHedge in 1985 (one of the oldest and largest hedge-fund
databases), says there have been only a handful of times when clients have reported returns
that were materially off from those submitted by managers. “In those cases, we then
investigated the discrepancy and if the error wasn’t due to an honest mistake, the fund was
delisted,” says Mr. Waksman.
Jeffrey Willardson, managing director at Paamco Prisma, says databases are a reasonable
starting point for identifying potential hedge-fund investments. “But rigorous due diligence,”
he adds, “is essential to verify fund management, operations, investments, as well as return
data.”
Reviewing funds that don’t report to databases, especially the largest, most-established names,
can be difficult. Many managers don’t want their performance data known across the industry.
But this review captured some.
Mr. Uhlfelder writes about global capital markets from New York. He can be reached at
reports@wsj.com.
12/11/2020 Absolute return funds on course for worst ever annual outflows | Financial Times
The week’s best fund management articles
FTfm Fund management

Absolute return funds on course for worst ever annual outflows
Investors have pulled money from the all-weather funds after they disappointed
during the coronavirus sell-off
The funds are meant to provide protection in periods where traditional asset classes struggle © Aiksing | Dreamstime.com
Siobhan Riding DECEMBER 6 2020
Be the first to know about every new Coronavirus story Get instant email alerts
Absolute return funds, products that promised investors positive returns in all
markets, are on track to record their worst-selling year to date after suffering poor
performance during the coronavirus market shock.
European investors withdrew a net €18.6bn from absolute return funds, which
include former blockbuster products such as Standard Life Aberdeen’s Gars fund
as well as quantitative strategies run by AQR and BlackRock, during the first 10
months of the year, according to data provider Morningstar.
This is just shy of the €21.3bn that was withdrawn from the funds over the whole of
2019, making the sector likely to end 2020 with its highest ever annual outflows,
said Morningstar.
https://www.ft.com/content/5fc597bf-f590-42ad-a8b8-3c97ab1bcdd9 1/3
The data covers European-domiciled funds categorised by Morningstar as

alternative multi-strategy. These products invest in a range of assets and
derivatives to achieve a set level of returns above cash irrespective of market
conditions.
Francesco Paganelli, an analyst at Morningstar, said that investors were frustrated

with the funds’ failure to shield them from losses during the coronavirus-induced
sell-off earlier this year.
“[Absolute return funds] are meant to provide protection or good returns in

periods where traditional asset classes struggle,” he said. “But most of these funds
did not provide the crisis alpha that many investors expected in March.”
Absolute return funds’ recent woes raise further questions about the future of the
products, which were once one of the hottest growth areas in asset management.
After experiencing huge asset growth in the aftermath of the financial crisis, the
funds began to lose their lustre when they failed to deliver during the market
turbulence of late 2018. According to Morningstar, assets in European alternative
multi-strategy funds have fallen by more than a third over the past three years.
Although returns improved for some absolute return funds during the market
recovery in the second and third quarters, Mr Paganelli said that the steep losses
they experienced at the height of the turmoil had spooked investors.
The worst-selling products include the BNY Mellon Real Return, Aviva Investors
Multi-Strategy Target Return and Gars funds, which respectively suffered
performance losses of 15.5 per cent, 9 per cent and 7.5 per cent between mid-
February and mid-March.
Invesco’s Global Targeted Return fund suffered the highest outflows in the
category, with €2.9bn flowing out of the door between January and October. While
the fund recorded lower losses than peers in March, its performance is negative
year to date, said Morningstar.
Quantitative strategies such as the LFIS Vision Premia fund, run by French fund
group La Française, and the BlackRock Style Advantage fund also bled money after
their returns were hit by the poor performance of value stocks. The funds have lost
8.4 per cent and 22.5 per cent respectively, year-to-date.
Standard Life Aberdeen and BNY Mellon, whose funds’ year-to-date performance
is now in positive territory, said that absolute return strategies would continue to
play a role in portfolios as investors sought flexibility amid heightened market
uncertainty.
Aviva Investors, whose fund is also up year to date, said it had faith in its strategy
to deliver on investors’ long-term objectives.
Invesco’s Scott Thomas said his team had preserved capital in the first quarter of
this year, adding that the fund would remain relevant especially as investors faced
lower returns from traditional assets.
BlackRock said that while the overall sector had delivered on investors’
expectations, it was “inevitable” that some funds had underperformed due to the
high dispersion among managers. La Française declined to comment.
7/6/23, 8:27 AM Inside the $10tn ETF industry | Financial Times
FT Alphaville JPMorgan Chase & Co

Inside the $10tn ETF industry
The annual JPMorgan ETF handbook has arrived
© Teletubbies
Robin Wigglesworth JULY 3 2023
Thanks to their built-in transparency, there’s no shortage of information floating

around about ETFs. But one of the most comprehensive regular industry snapshots
is JPMorgan’s annual Global ETF Handbook.
The 19th edition — written by Marko Kolanovic and Bram Kaplan — landed a
couple of weeks ago, and Alphaville has belatedly leafed through it for any
interesting new titbits.
Most of it will be familiar to anyone with a passing knowledge of the ETF industry
(there are some good explainers of basic ETF issues for those who need a catch-
up). But as always, there is a lot of good data, pretty charts and interesting-ish
observations.
Despite most markets chundering last year, the overall assets in ETFs globally has
continued to climb: hitting $10.1tn at the end of May, up from $9.6tn a year ago.
And there are now about 11,000 individual ETFs listed around the world, even if
the US still dominates in numbers and volume.
https://www.ft.com/content/bdfb0b20-2bbd-4576-81d3-4878e174a29a 1/7
Equity ETFs dominate, but bond ETFs have grown massively in recent years, and
now accounts for about 21 per cent of the entire industry (ie about $2.1tn).
ETF options — and especially zero-day-to-expiry options on ETFs — have become

hugely popular in recent years, and seem to have led to a massive decline in single-
name options trading.
It’s hugely concentrated, however. JPMorgan notes that State Street’s S&P 500-
tracking SPY, Invesco’s Nasdaq-linked QQQ and BlackRock’s small-caps IWM ETF
account for about 94 per cent of all US ETF option trading volumes in 2023.
One thing that hasn’t changed is that fees keep coming down, and money mainly
keeps gushing into the cheapest ETFs — trends that are two sides of the same coin.
JPMorgan estimates that the AUM-weighted average fee has halved in the US over
the past decade to just 17 basis points today. Other markets lag behind, but the
trend remains the same, across regions and asset classes.
Aside from the year ending May 2021 — when a bunch of pricier actively-managed
ETFs were briefly red-hot (hello Cathie!) — funds in the lowest expense quintile
attracted over 80 per cent of total flows across 2014-23.
That rose to 85 per cent last year, while the most expensive quintile only took in 4
per cent of overall flows.
Another thing that didn’t change is that the Big Three — BlackRock, Vanguard and
State Street — continued to be the Big Three, with their combined market share
staying close to 80 per cent.
However, Vanguard’s market share of the ETF landscape continues to edge up,
from 28 per cent in 2021 to 29 per cent this year. In trading volume terms, the
popularity of State Street’s SPY (the most heavily-traded equity security on the
planet) means it tops that table.
JPMorgan also seems to be notable adherents to the Age of the ETF thesis, with
Marko and Bram predicting continued flows and more mutual fund-to-ETF
conversions:
We expect ETFs to increasingly take market share of the actively

managed universe from mutual funds, given ETFs’ advantages:
typically lower expenses, greater tax efficiency due to in-kind
creation/redemption and custom in-kind baskets for rebalancing,
intraday liquidity and continuous pricing, and the ability to short and
trade options. In the past couple of years, we noted how fund managers
were beginning to convert some of their mutual fund offerings to the
ETF wrapper. The past year, we have seen 16 such conversions,
bringing the total number of mutual fund to ETF conversions to-date
to ~40, with nearly $60Bn in assets. The largest conversion over the
past year was the JPMorgan International Research Enhanced Equity
ETF (ticker: JIRE), with $5.3Bn in assets. These successful conversions
are likely to open the door to more fund managers following the same
path in the future.
As such, we see strong growth potential for actively managed ETFs in

the years ahead. However, the broader rotation from active to passive
funds (which has seen over $3Tr flow in that direction in global equity
funds over the past decade) appears unlikely to reverse near-term,
suggesting the growth in active ETFs will likely come largely at the
expense of active mutual funds rather than passive ETFs.
Elsewhere there are discussions of issues like the atrophying ETN market, the
growing number of managed risk ETFs, single-stock ETFs, and Vanguard’s
expiring ETF share class patent. You can find the full handbook here.
Further reading:
— The (American) age of ETFs

— Super passive goes ballistic; active is atrocious
— How passive are markets, actually?

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3/15/23, 6:33 AM Asset managers warn too much choice is confusing retail investors | Financial Times

Madison Darbyshire in New York MARCH 13 2023

The asset management industry rushed to diversify its offerings in response to

The “democratisation” of complex investment products, which give retail investors

“Today there’s a reasonable divide between the technical elements we bring in

Copyright The Financial Times Limited 2023. All rights reserved.

Exchange Traded Funds

MAY 10, 2017 by: Robin Wigglesworth, US markets editor

beneath the surface, nurturing a more fertile environment for traditional,

Nonetheless, many investors are unimpressed after years of underwhelming

FTfm Exchange traded funds

Copyright The Financial Times Limited 2018. All rights reserved.

Latest on Exchange traded funds

How easy or hard was it to use FT.com today?

FTfm Exchange traded funds

Chris Flood DECEMBER 1 2019

The rivals have led a cut-throat price war on fees

Sign up to the weekly FTfm email One-Click Sign Up

Copyright The Financial Times Limited 2019. All rights reserved.

The week’s best ETF articles

ETF Hub Exchange traded funds

Chris Flood SEPTEMBER 9 2020

Governments worldwide have announced $20tn worth of stimulus measures in

Aggressive steps by policymakers have encouraged investors to plough $428bn in

Sentiment towards ETFs has been

ETFs, which provide a low-cost way to invest in a basket of assets by tracking an

BlackRock’s iShares ETF arm has gathered

Strong buying via ETFs has also helped to

Copyright The Financial Times Limited 2020. All rights reserved.

The latest news on ETFs

ETF Hub Exchange traded funds

Chris Flood JANUARY 14 2021

Pennsylvania-based Vanguard attracted ETF inflows of $206.6bn in 2020, a jump

Click here to visit the ETF Hub

Copyright The Financial Times Limited 2021. All rights reserved.

Global ETF Assets Hit $9 Trillion

Total net assets for global ETFs, annually

Note: Data for 2021 through July

Net flows into global ETFs, annually

Note: 2021 data through July

Note: Data through July

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

MǺŘĶĚȚȘ | ỲǾŲŘ MǾŇĚỲ | ẄĚǺĿȚĦ ǺĐVİȘĚŘ

Fǿř ťħě Fįřșť Ťįmě, Ťħěřě’ș Mǿřě

Mǿňěỳ įň ĚŤFș Ťħǻň Ħěđģě Fųňđș

Měǻňẅħįŀě, ǻșșěțș įň ħěđģě fųňđș ẅǿřŀđ-ẅįđě țǿțǻŀěđ $2.969 țřįŀŀįǿň, ǻččǿřđįňģ țǿ ǻ

—Mįķě Fǿșțěř čǿňțřįbųțěđ țǿ țħįș ǻřțįčŀě.

Ẅřįțě țǿ Đǻįșỳ Mǻxěỳ ǻț đǻįșỳ.mǻxěỳ@ẅșj.čǿm

DOW JONES, A NEWS CORP COMPANY

ETFs Now Have $1 Trillion More Than

So far this year, research firm HFR’s index of

ETFs Hedge funds The divergence in assets is just the latest

Write to Sarah Krouse at sarah.krouse@wsj.com

Ortenca Aliaj JANUARY 19 2021

Against a backdrop of rising markets, strong performance helped to boost hedge

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Bond Exchange-Traded Funds Pass $1

But from that sleepiness came opportunity.

To make this work, the creators of the ﬁrst ﬁxed-

Since BlackRock bought iShares from Barclays

BlackRock today manages about $6.5 trillion in

Write to Asjylyn Loder at asjylyn.loder@wsj.com

Mutual Funds vs. ETFs: What Investors Should Know

• What are these funds to begin with?

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KWWSZZZZVMFRPDUWLFOHVOHVVRQVIURPWKHGRZQWXUQRIKHGJHOLWH"PJ LGZVM

LongShort There are 1,345 such funds tracked by

Barclays Agg There have been highprofile closures,

Printed from: http://www.ft.com/cms/s/0/a485f82e1d1811e6a7bcee846770ec15.html

On paper, liquid alternatives exchangetraded funds appear to be full of promise.

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