Between February 2013 and January 2014, the market benchmark S&P 500 index gained 21.5% but hedge funds gained a measly 8.2% for investors during that time period. That's according to a survey by TrimTabs Investment Research and BarclayHedge of the $2.1 trillion hedge fund industry.
So what is their secret to bringing in so much money?
Anthony Scaramucci, founder and managing partner of the $9.6 billion SkyBridge Capital fund of funds, explains that hedge funds' attractiveness is the result of doing exactly what their name implies – hedging.
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"Last year, when we had less volatility and markets were going up in a straight line, hedge funds underperformed," says Scaramucci. "But, if you have bumps like this [past January], I think you could see hedge funds actually do better than the indices."
Scaramucci says that of the 1,000 hedge funds his company tracks, one trend has been to take on more of a long bias. "They have more long bias this year benefitting from the positive equity markets," says Scaramucci. "Event-driven strategies have been successful. We're seeing a lot more merger activity; the merger arbitrage funds are doing quite well."
Hedge funds have also been increasing their exposure to gold, taking on their largest net long positions in gold since December 2012. As well, the TrimTabs/BarclayHedge survey shows hedge fund managers expect gold prices to rise in the next six months.
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"The [Federal Reserve Bank] is tapering [its stimulus] so you would have thought, based on those fundamentals, that gold prices would begin to decline," says Scaramucci. "But, if you look at the technical numbers on gold, that commodity and some of the other commodities are still technically oversold."
Nonetheless, Scaramucci remains caution on the yellow metal.
"This primarily has to do with the Fed normalizing its monetary policy hopefully by the end of this year," says Scaramucci. "And, what we're seeing is strong-than-expected economic growth. I think those two things auger negatively for gold long-term."
To see the full discussion on hedge funds with Anthony Scaramucci of SkyBridge Capital, watch the video above.
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