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Hedge Funds Vs. Index: Which Gives Better Returns?


Goldman Sach's $10 billion dollar Global Alpha Fund--a 40% gainer last year--is down almost 11% this year while the stock market is on a bull run. This year on average--the so-called smart money is underperforming the broad averages. This begs the question--can hedge funds deliver above market returns or is the market simply too efficient?

Indexes Beating Hedge Funds

Gary Weiss is author of "Wall Street Versus America." John Mauldin is President of Millennium Wave Investments. Both appeared on "Squawk Box" in our "Power and Money" segment.

Weiss believes that hedge funds do not stack up well against index funds. Mauldin believes the opposite and says that any recent reporting on the hedge funds vs index funds is just wrong in how it calculates returns. He also says that more institutional investors are entering hedge funds--and since they are looking for more stability--hedge fund managers are trying to accommodate a bit--and that may mean lesser returns.

Weiss says that since hedge funds don't have to report anything--and they're really a "black hole." Mauldin counters by saying that investors should know who manages their hedge fund and do everything they can to learn the manager's investing style. Weiss did say that just knowing a hedge fund manager doesn't help--because they often do the opposite of what they say they will do when it comes to investing.

FYI: the average hedge fund was up 11.7% vs the S&P up 12% through November of this year.