(For more Market Line insights, see NI MKTLINE.)
July 7 (Bloomberg) -- 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 percent since the end of April through last week compared with a 5.8 percent gain in the Standard & Poor’s 500 Index 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 percent jump, and a 38 percent rally in Williams Cos. after the energy company promised a 32 percent 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 percent of the index, LyondellBassell Industries NV, was up 7.8 percent.
The outperformance marks a reversal from the March-April period, when the S&P 500 returned 1.6 percent and the index of hedge-fund managers’ picks fell 1.1 percent 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 percent for the year through April, trailing the S&P 500 by 6.4 percentage points before dividends. It’s rallied 8.7 percent since then.
For the year to date through last week, the Wells Fargo hedge-fund index was up 10.4 percent including dividends -- almost two percentage points more than the S&P 500. That 2 percent is a key threshold for those looking to justify paying that much of their assets (not to mention 20 percent 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 percent 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.