The blistering run-up by the S&P500 left hedge funds in the dust.

Hedge funds really are in the dock. Can they really make money in all market conditions? Their stark underperformance compared to the S&P500 during 2019 is hard to live down. But someone pointed out that hedge funds did worse than the market during the 2018 sell-off, too.

So hedge funds underperform – both on the swing and the roundabout.

Let’s look at some of the returns for 2019:

• S&P 500: +29%
• Nasdaq Composite: +35%
• DJIA: +22%
• Gold: +19%
• Oil: +35%
• Stoxx Europe: +23%

Meanwhile, according to HFR data quoted by the FT, hedge funds have likely delivered an overall 8.5% return in 2019.

Money managers could feel some heat

With the numbers above, it’s understandable that investors will feel some angst regarding the money they’ve entrusted to hedge funds.

But less than half of the returns of any of the above major asset classes? That takes some doing.

Granted that hedge funds do incur some costs for hedging their exposure, but that can’t explain away the gap. Basically, a money manager got whipped for being cautious.

This was a “straight-up” market for the unsophisticates. You just had to get in on the passive gravy-train and hold on for dear life.

“This past year was a good illustration of the old saying that “everyone is a genius in a bull market,” says James “Rev Shark” Deporre.  “Staying long in an index was the only thing that you needed to do and that doesn’t take much strategy.”

But bad times like 2019 don’t last, and hedge fund managers may yet have the last laugh in 2020 if the market serves up some serious correction(s).

That’s when active management will come into its own.

Related Story: Hedge Funds Record Best Year Since 2013, But Departures Loom