Compulsion

We can’t help it. Like the cat who can’t stop chasing the light from the flashlight, despite the fact that it can’t be caught, so must we comment on headlines like this, “Hennessee Group: Hedge Funds Underperform in June” even though we know it’s a futile exercise.

Why, why, why does our industry insist on comparing the amorphous collection of strategies that fall under the hedge fund or alternative umbrella, as a group, to the S&P 500?  The article says, ” The Hennessee Hedge Fund Index fell a minimal -0.02% in June while the S&P 500 gained +0.09%, the company noted in a statement.” They noted it in a statement. A statement.

As we wrote in our Monthly Alternatives Briefing in July 2015:

” Why do we care? We care because these comparisons set incorrect expectations for investors. Most alternative strategies attempt to generate unique sources of alpha; they try to manufacture returns with low correlations to traditional asset classes and with less volatility; they aim to provide downside protection when markets take a turn for the worse. Few alternative strategies explicitly attempt to outperform the S&P 500 outright…We’ve observed that investors think in relative terms when equities are rising and in absolute terms when equities are falling, which is a bar that is all but impossible to reach, let alone exceed. If collectively our job is to help educate investors, step one is to convey information that properly establishes expectations.”

We would argue that headlines like these are antithetical to the very idea of conveying information that properly sets expectations.