They say it’s a good idea to check in on elderly loved ones during the hot summer months. And after the rough spring they had, it’s probably also a good idea to check in on loved ones managing equity hedge-funds.
The good news: they’re looking a lot better than they were a few months ago, according to measures of their stock picks.
The Wells Fargo Hedge Fund Manager Holdings Index has beaten the Standard & Poor’s 500 Index for two straight months, surging 8.7% since the end of April through last week compared with a 5.8% gain in the Standard & Poor’s 500 Index (CME:SPU14) including dividends. The Wells Fargo gauge measures the performance of the 100 largest positions reported in quarterly regulatory filings from hedge funds and managed accounts.
Among the best-performing stocks in the index since the end of April have been Netflix Inc., with a 47% jump, and a 38% rally in Williams Cos. after the energy company promised a 32% dividend increase when it buys control of Access Midstream Partners LP for $6 billion. Only 10 stocks in the index are down in the time frame. The heaviest-weighted stock of the group at more than 5% of the index, LyondellBassell Industries NV, was up 7.8%.
The outperformance marks a reversal from the March-April period, when the S&P 500 returned 1.6% and the index of hedge-fund managers’ picks fell 1.1% including dividends. Another gauge of hedge-fund picks had an even rougher start to the year.
The Solactive Guru Index, measuring the top holdings of a selected group of hedge funds, trailed the S&P 500 in each of the first four months of the year. It was down 4.5% for the year through April, trailing the S&P 500 by 6.4 percentage points before dividends. It’s rallied 8.7% since then.
For the year to date through last week, the Wells Fargo hedge-fund index was up 10.4% including dividends -- almost two percentage points more than the S&P 500. That 2% is a key threshold for those looking to justify paying that much of their assets (not to mention 20% of profits) for the privilege of investing in a hedge fund.
Of course the long picks are only part of the story. Goldman Sachs Group Inc. said in a May report that of the 777 hedge funds it analyzed with $1.9 trillion of gross equity positions, about $618 billion of their bets were short sales. Goldman’s Very Important Short Position Basket rallied 6.1% including dividends since the end of April, burning anyone who shorted those stocks.
So while they’re doing better, maybe it is still a good idea to check in on those hedge-fund loved ones. Assuming you can get past security.