Cover of MoneyWeek magazine issue no 501

What to buy now

27 August 2010 / Issue 501

Our experts pick their top stocks

PLUS:

  • Microfinance: profit from lending to the poor
  • The cartoon pig that made £100m
  • Will America go the way of Japan?

Excerpt

The profits that got away

We are fishing in Scotland. Every evening we gather after a day on the river to give and listen to the various excuses being made for the lack of fish at the table.

The water is too high; the water is too low; it’s been raining; it hasn’t been raining; the air pressure is wrong; the ghillie was drunk; and so on. But nowhere in this parade of self-justification does anyone admit to being not much good at casting or not having the faintest ability to see into the mind of a spawning salmon and to fish accordingly.

Remind you of anything? Hedge-fund managers perhaps?

They did not as a group do too badly in 2009 (the Eurekahedge Fund Index suggests an average return of 20%). But the fact that they did OK in a year when all markets soared tells us nothing of their skills. What they’ve done so far this year does – and it isn’t encouraging.

The Eurekahedge index has the average fund falling 2.6% in May and 0.5% in June. That makes it the fourth-worst first-half since 1987, says Hennessee Group. The Absolute Return sector, named so as to suggest some sense of security and regular guaranteed return, has been just as useless. Citywire numbers show that absolute return funds from the likes of UBS and RAB have fallen over 30% in the last three years.

To me, all this suggests the vast majority of Absolute Return fund managers should retire immediately, admitting along the way that they understand today’s global markets no better than the rest of us.

• Read the full editor’s letter here:
The profits that got away