Last week, Louis Bacon, an investor who made a 30 year career of making over 20% gains annually based on “macro” investing by placing big wagers on variety of global indicators, called it a day and is closing down his funds at Moore Capital Management. The reason – his funds have returned low single digits this year when the S&P has climbed over 20%.
Louis follows on the footsteps of other hedge funds who have shut down due to poor returns – Omega Cap, Highfields, Criterion, Tourbillion, Jabre among others. Each of these funds had a big name fund manager who garnered billions in investor money but, ultimately, could’nt figure out how to consistently beat the index. In effect, these managers who rely on judgement, intuition and research struggled in the changing times as pressure, on fees they charge, mounts and the returns they generate are not compelling enough for investors to stick with them.
Future Wealth’s View
It is not that these managers are no good. It is that 2019 has been a miserable year for the world economy, with trade wars, geopolitical instability and slowing growth. Yet investors have benefited this year — no matter where they invested their money. Nearly every major asset class has offered returns over the course of the year that have been extraordinary, in many cases. And therein, lies the conundrum as a fund manager who makes big bets. When macro indicators point downward, throwing money at growth stocks is illogical but when the reverse happens, it is time to close the fund. Such is the life in the hedge fund business.
We, at Future Wealth, fully recognize the challenge in calling the direction of the market. In these times when tweets instead of macro indicators drive stock gains, it is easy to get swept up into the vortex of greed. But, we continue to believe that the most telling indicator that the stock market is in trouble isn’t a yield-curve inversion or rising corporate debt levels but the flood of money piling into highly defensive names – a strategy we have stuck with all year in our clients’ portfolios.
As Dan Quayle – VP in George H.W. Bush’s administration once said “I have made good judgments in the past. I have made good judgments in the future.”