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Hedge Fund Update for First Quarter 2011

A truly amazing phenomenon is the continued popularity of hedge funds, especially among high-net-worth investors. Despite the historical evidence on their lousy performance (as presented in my book The Only Guide to Alternative Investments You'll Ever Need), hedge funds continue to attract great attention. Instead of hype and hope, we continue to provide investors with the data. The table below presents the returns of the HFRX Global Hedge Fund Index and compares it to the performance of various equity and fixed income indices, both for the period 2003-2010 and also for the first quarter. The evidence speaks for itself.

Given the evidence, the only logical explanations I can think of for the continued popularity of hedge funds are that either investors are unaware of the data, or that individuals invest in hedge funds for the same reasons they buy a Rolex or carry a Gucci bag -- they're expressions of status, prestige, exclusivity and sophistication. Letting emotions such as these determine investment decisions is a recipe for transferring assets from your wallet to those of the purveyors of products.

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