Mutual Funds match Hedge Funds

from Barrons. Hedge funds may be no better than mutual funds, after all IN THE WORLD OF HIGH FINANCE, EQUITY-MUTUAL-FUND managers have the reputation of being plain-vanilla, plodding and, well, dull investors, while their hedge-fund cousins have enjoyed the image of highflying, swashbuckling marauders. It is boring "buy and hold" versus higher-turnover, more active and opaque hedging strategies. But guess what? A new study led by Prof. John Griffin of the department of finance at the University of Texas at Austin raises serious questions about the perceived superior skills of hedge-fund managers. He was "a little bit surprised" by the findings. "I expected more hedge-fund outperformance," he says, especially since mutual-fund managers charge an average 1% of assets while hedgies charge 1% to 2% of assets and take 20% of the profit. Using a sample of 300 hedge-fund firms and much of the mutual-fund universe, Griffin compared the performance of the funds' equity positions based on their filings with the Securities and Exchange Commission, both against each other and passive benchmarks. Individual hedge funds aren't required to report their positions, but their holding companies are. Previous studies have focused on reported returns, but they didn't take into account the possibility of hedgies' "smoothing" their results. A hedgie, for example, might match a 5% gain by the market in one month, yet report just a 2.5% gain -- hoarding the extra for the following month, when the broad market loses 2%, as does his fund. That month he can claim a 0.5% gain. The 0.5% gain is called alpha, the excess return a hedge fund provides over the performance of the broad market with the same risk. But it is phony alpha. A hedge fund, however, can't cook the performance of stocks in its portfolios. That is why Griffin believes his study merits attention. He found that hedge funds did better than mutual funds at picking stocks, but the gain over the average mutual-fund return was just 1.32% per year. That's before fees! Griffin also found that "hedge funds exhibit no ability to time sectors or pick better stock styles" than mutual funds. "Surprisingly," he says, his group found only weak evidence that the stars in the hedge-fund world produce greater returns than the hedgies of the hoi polloi. The lesson for potential hedge-fund investors: Don't make an alpha bet.

The Truth about investing: the Core Method it works very well

Consider what Charles Ellis, who helps oversee the $15-billion endowment fund at Yale University, said:

"Watch a pro football game, and it's obvious the guys on the field are far faster, stronger and more willing to bear and inflict pain than you are. Surely you would say, 'I don't want to play against those guys!'

Well, 90% of stock market volume is done by institutions, and half of that is done by the world's 50 largest investment firms, deeply committed, vastly well prepared -- the smartest sons of bitches in the world working their tails off all day long. You know what? I don't want to play against those guys either."

That's a brutal and very honest observation. The institutions Ellis refers to are mutual funds, hedge funds, and program traders -- and all of their professional staff, mathematicians, and researchers. The pros are deploying every possible tool to give them whatever edge they can get. And even they can have a hard time, as most of them will testify to the difficulty of trading in 2008.

The Core Method relies on ferreting out the information on what the best of these institutions are buying from the morass of data on their holdings.

Most of this data is gleaned from public filings. Using that data is a terrible way to invest for the future. Thats what they were doing as much as a year ago in some cases.

The Core Method identifies the most successful institutional investors currently, and then searches news, websites and other media for information on the most current holdings.

Where there is a consensus amongst the best, we can identify the security and Invest like the Best sm