Investing Ideas As 88% Hedge Funds Underperform
2012 was not a good year for most hedge funds. When the S&P 500 returned 16%, 88% underperformed, according to a report by Goldman Sach’s (GS) David Kostin. The performance highlights the difficulty for even the pros to beat the market. Investors could look at some of the investment strategies and ideas taken by hedge funds as a source for their own investing.
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1. Financials and Information Technology were up 23% each. The sectors accounted for more than 50% of the gains in the S&P 500. Bank of America (BAC) and Citigroup (C) undoubtedly outperformed the markets last year, along with other banks. Despite having book values substantially higher than the share price, the unknown liabilities were enough of a reason to avoid these companies. Banks still need merger and acquisition (“M&A”) and other financing activities to truly grow. Bank of America spent 2012 and previous years cutting on costs.
2. Consumer Discretionary outperformed the markets by 790 basis points in 2012. Home Depot (HD) and Amazon (AMZN) were surprisingly strong performers. Home Depot could offer moderate performance this year, but a continued rebound in US housing could benefit the company.