🎙️ On The Move

Folks, it took the S&P 500 a grand total of 511 days to reach a new all-time high on Friday. That’s the sixth-longest streak since 1950.

As the S&P hit another fresh high on Monday, financial “meme lord” Douglas A. Boneparth tweeted: “Congratulations to all the investors who did nothing!”

💭 Praise can also be extended to investors who did "a lil something” and those who “just kept buying.”

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the three biggest stories in markets:

• Hedge funds report bumper year

• Howard Marks on rates, gold, and bitcoin

• The growing number of dissatisfied workers

All this, and more, in just 5 minutes to read.

Chart of the Day

In The News

💰 Hedge Funds Report Bumper Year in 2023

It was a good year to invest in big hedge funds. Actually, it was one of the best ever. The industry produced $218 billion in gains after fees in 2023. The top 20 funds, in terms of total profits produced, captured about a fifth of all hedge funds’ returns.

These top funds returned roughly 10.5% last year, compared to 6.4% on average across all funds.

• While small hedge funds typically specialize in niche strategies, the biggest are often “multistrategy hedge funds.” And Bloomberg reports they’ve been “gobbling up assets, talent, and leverage in recent years, causing unease among regulators.”
  

• As mentioned, these big funds love leverage — they use borrowed money to juice returns. Doing so comes with higher operating costs, meaning higher fees for investors in these hedge funds. It also means more risk.

Regulators’ concerns about risk aren’t necessarily just for the (typically wealthy) investors in these funds but rather for the wider financial system. When playing with lots of borrowed money, big hedge fund blow-ups can spur or accelerate broader crises.

Why it matters:

Still, when it comes to others actively managing your money in investment funds, it often only makes sense to invest with the “best of the best” (you could’ve beaten most hedge funds with an S&P 500 index fund!)

Big, multistrategy hedge funds are the best of the best:

• 83% of all investment gains produced by hedge funds came from the top 20 funds. Although the top funds have the most assets under management, the point remains since these funds also delivered higher percentage returns on average.
  

• As one investor put it, “These managers have been generating above average performance over several decades reflecting the persistence of their superior returns.”

The best of the best, of the best: Among the top tier of hedge funds, there’s an even more elite sub-tier. Citadel, Millennium Management, and D.E. Shaw & Co. are particularly dominant, generating a combined $71 billion in gains since 2020 — almost 40% of all hedge funds’ profits despite holding less than 5% of the industry’s assets.

• Although your average hedge fund is probably packed with Wharton-educated, experienced investors, they struggle to beat their benchmarks after fees. The top 20 do better, but the top 3 stand like giants over the rest.

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