Buffett Challenge, hedge funds vs. index funds, 9 years on

Advisors


The 10-year period began January 1, 2008, which means we are in the final year of the challenge. While we don’t know the funds selected by Protégé, we do have a nine-year performance update — and it’s not pretty.

The hedge fund portfolio is up just 22 percent over nine years. That’s slightly better than 2.2 percent per year. How did the S&P Index fund do? Oh, just a smidgen better. It’s up 85.4 percent, or 7.1 percent per year on average. The results by fund are even more startling:

2008–2016 Cumulative Returns of Funds in the Buffett Challenge

Fund A: 8.7%
Fund B: 28.3%
Fund C: 62.8%
Fund D: 2.9%
Fund E: 7.5%
Hedge Fund Average: 22.0%
Index Fund: 85.4%

These are cumulative returns for the nine years, not yearly averages, and all I can say is “yuck.” Not only is the hedge fund portfolio lagging the index fund by a wide margin, not a single fund that Protégé selected is outperforming the index fund. Only one even comes close, and it’s still trailing by more than 25 percent. Three of the five funds have average annualized returns of less than 1 percent!

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The challenge period officially ends Dec. 31, 2017, and it would take something we couldn’t really call a miracle for Protégé to win. It would take a catastrophe, a market meltdown that would dwarf the Great Recession of 2008–2009, an event that would be so detrimental to investors and fund managers that Protégé themselves must secretly be hoping they will lose. And even with such a disaster scenario, Protégé might still lose if the funds they selected didn’t hedge away most or all of the market downturns.



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