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Hedge Funds in 2013: Why Did They Do So Badly?

By Dan Caplinger - Updated Mar 7, 2017 at 4:09PM

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Hedge funds badly lagged the stock market in 2013. What did they do wrong? Find out here.

The stock market has soared this year, but for hedge funds in 2013, gains haven't been forthcoming. One report puts the average return for hedge funds in 2013 as of November at just 7%, quite a bit less than the Dow Jones Industrials (^DJI 0.00%) and the broader market. Given how much these professional investors get paid, their underperformance is particularly surprising. 

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, explains the headwinds that hedge funds have faced. Dan notes that some hedge funds blame government intervention in various markets, ranging from the bailouts in General Motors (GM 4.16%) to broader interest rate policy that sent PIMCO Total Return (BOND 0.29%) to losses for the year even taking interest into account. Dan also points out the number of bad bets that some hedge-fund and private-equity investors have made, with Bill Ackman's bad calls on J.C. Penney (JCPN.Q) and Herbalife (HLF 3.17%) being just one example. In the end, Dan concludes that one bad year doesn't mean hedge funds are a bad bet forever, but it does show the value of low-cost index investments over time.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends General Motors and has options on Herbalife. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$32,803.47 (0.00%) $0.00
General Motors Company Stock Quote
General Motors Company
$37.56 (4.16%) $1.50
J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.
PIMCO ETF Trust - PIMCO Active Bond Exchange-Traded Fund Stock Quote
PIMCO ETF Trust - PIMCO Active Bond Exchange-Traded Fund
$96.65 (0.29%) $0.28
Herbalife Ltd. Stock Quote
Herbalife Ltd.
$28.66 (3.17%) $0.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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