Hedge Fund All-Stars: The State Of Play In Global Markets <\/strong> The reality is that outside of the United States stock market, global stock markets haven’t done much in the last six months. <\/p>\n <\/strong> <\/p>\n While the U.S. stock market rose a solid 15 percent during the last six months through April 2010, the MSCI EAFE Index\u2014a stock market index that reflects market performance of developed markets in Europe, Australasia and the Far East\u2014was clearly in the red for 2010. The formerly high-octane BRICs (Brazil, Russia, India and China) are struggling this year. And the weak performance of global markets masks a now seemingly distant but stomach-churning 15 percent sell-off in global stocks within the span of two weeks in January and February.<\/p>\n Hedge Funds Struggling: Here’s Why <\/strong> Yes, the dollar is up, and the euro and the British pound are down. Sugar soared for a while, but then collapsed. But gains on those trades have hardly made up for the cost of being whipsawed in and out of the market by sharp sell-offs in January and again in early May this year.<\/p>\n For retail investors, \u201cbuy and hold\u201d remains the dominant investment mantra. And it\u2019s also the strategy that has worked best over the past 14 months. But after a paradigm-shifting 2008, hedge funds are understandably skittish. They are (rightly) focused on the downside risks\u2014whether financial contagion from Greece or another \u201cBlack Swan\u201d event which they cannot predict.<\/p>\n Top hedge funds are also struggling because they look at risk in a fundamentally different way than investors schooled in the ways of "buy and hold." They are focused on the downside to a degree that is hard for most investors to imagine. At SAC Capital, if a portfolio manager is down 5 percent, he loses half of his money under management. If he loses 10 percent, he is shown the door. Apply that same standard to your favorite broker and see how long he’d last.<\/p>\n The experience of 2008 is also why many top hedge funds went on the defensive after the sharp sell-off in January. And they have been scrambling to recover ever since. Recent volatility in global financial markets notwithstanding, after an eight-week rally in the U.S. markets through the end of April, the sharpness and suddenness of the January sell-off seemed to fade into distant memory. As John Kenneth Galbraith observed, \u201cthe financial memory is very short.\u201d For U.S. investors glued to the non-stop video game that is CNBC, \u201cfear\u201d rapidly transformed into \u201cgreed.\u201d Of course, the big sell-off in the first week of May should serve as a reminder that risk management is as relevant to individual investors as it is to big institutions.<\/p>\n The bottom line? Yes, staying "dumb and long" in the U.S. stock market while ignoring the dips has been the single-best investment strategy over the past year. And any monkey, throwing darts at The Wall Street Journal<\/em> would have outperformed the world’s top Market Wizards over the course of the last 14 months. <\/p>\n But as any old trader on Wall Street will tell you, \u201cnever confuse brains with a bull market.\u201d And as any hedge fund manager will add: \u201cIf you pay peanuts, you get monkeys.\u201d <\/p>\n Sincerely,
\n Well, if that monkey is an American one throwing darts at American stocks, the approach may succeed. But it’s been tougher for the monkey’s more cosmopolitan cousin.<\/p>\n![\"Chart](\"http:\/\/www.personalliberty.com\/wp-content\/themes\/redesign\/images\/iSharesTrust.gif\")
<\/center><\/p>\n
\n Unlike U.S. retail investors, global macro hedge funds\u2014or \u201cmulti-strategy funds\u201d\u2014aren\u2019t necessarily focused solely on the U.S. stock market. And opportunities to make money outside of the U.S. stock market have been limited.<\/p>\n
\n![\"Nicholas](\"http:\/\/www.personalliberty.com\/wp-content\/themes\/redesign\/images\/NAVardy-signature.gif\")
\nNicholas A. Vardy
\nEditor, The Global Guru<\/strong><\/em> <\/p>\n