Active Management Continues to Lag Indexes

After a really bad 2014, 2015 proved little better, with the majority of hedge funds, managers, and mutual funds failing to beat the S&P 500. Carl Icahn, Warren Buffett, and Bill Ackman – all of whom are billionaires – lagged the market substantially.

Buffett lagged by 13% in 2015

Bill Ackman by 20%. It looks like the cockroach is getting stepped on in his Herbalife short, as I predicted in 2014 would happen. Even billionaires fail when they bet against free market capitalism.

Carl Ichan down over 10% in 2015 due to bad bets on energy. And he lost 7% in 2014 against a market that rose 11%.

David Einhorn, another liberal, down 20%.

Hedge fund performance over the past three months hearkened back to the bad old days of the financial crisis.

Poor performance weighed heavily on the industry, causing the biggest net loss in capital since the fourth quarter of 2008, according to data released Tuesday by HFR. The $95 billion decline pushed total industry assets further from the vaunted $3 trillion mark.

As measured by the HFRI Fund Weighted Composite Index, the industry saw a 3.9 percent performance drop in the third quarter, taking the barometer into negative territory for the year at minus 1.5 percent. At this pace, hedge funds will turn in their worst performance year since 2011.

Aren’t they supposed to hedge against the market falling – oh wait, the market was flat in 2015.

What does this prove? The fact that billionaires and hedge fund mangers – who have access unlimited data, who can buyout seats on the board of directors, and can even influence the news – are unable to beat the market but instead underperform it substantially, douses cold water on the leftist belief that the markets are rigged, inefficient, or a scam. The biggest scam are these firms charging high fees for poor performance, but the market itself is not broken.

Meanwhile, passive management is thriving as more and more people waking up to the scam that is active management:

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