The RiverPark short long fund has returned about 6%/year over last five years. http://finance.yahoo.com/q?s=RLSFX&ql=0 So here's his investor letter: http://www.riverparkfunds.com/Funds/LongShortOpportunity/Commentary.aspx His longs and shorts do about the same, so he's basically long the index at 150% and short the index at 50%, which comes out to long an index at 50%. There is $120M in the fund. What's funny is the investor letter is taken up entirely with defending losing positions in LVS and SWN. Apparently he doubled down in SWN as it fell from $35 to $8. It's fascinating to watch the ratoinalizations of a losing trader. Sure, the fund is a turkey. The position in SWN is a horrendous loser. But it's coming back. He's got about 500 words explaining why. The market is wrong. He's right, just early. He reduced his cost basis. Vindication will be his, as soon as he gets back to breakeven.
Well, people are sheep and they put these guys on a pedestal. Look at Andy Hall, he had past success and people called him a "God Trader" Than he lost $500 mill (17% ) in that July Oil dip and he was saying that he was right and the market was wrong. The market is never wrong. The price in the market is what people are buying/selling at http://www.cnbc.com/2015/08/06/god-trader-andy-halls-fund-loses-500m.html
Hasn't Hall been successful over the years? But he has had a few bad years being long oil, or so I've read. But at least "long oil" is a position. This guy has no positions really, just long and short the same thing and calling it a long-short fund.
For unlevered short/long strategies, that is par for the course over a normal bull market. It is even worse for market neutral funds. The std dev relative to the market is the critical metric that needs to be accounted for. Of course, the people who have been making 50% a year indefinitely will now start to flame me.
Exactly, these guys are delivering variance reduction, not high absolute returns. Most market neutral or long/short funds are bench marked to bond funds not equity. Six percent a year is really good if his variance is low enough.
Every fundamental trader - even the great ones - has big losers once in a while. It's not a perception issue with oil right now. There really are hundreds of tankers and supertankers parked off the coast in the Gulf of Mexico with no place to unload. The other thing everyone got wrong was OPEC and the Saudis failing to curb production to keep the price up. The cartel folks wanted to kill the price in hopes it would bankrupt the frackers. So far it hasn't. There are lots of folks that would take a 6% annual return with super low std dev in a market with bonds returning a fraction of that.
Picking 50 random stocks will outperform the S&P 500 99% of the time. Investing isn't this hard people.
But look at the commentary linked above. His shorts perform as well as his longs. In a down 10% year in the stock market, his fund will be down 5%+. He's only doing 6% because it's been a bull market (isn't it strange how all funds seem to have been started in spring of 2009?)
You can't draw that correlation. Long/short funds tend to perform sub par in rising markets, down less then mkt in declining markets and very well in flat markets. Again, the manager is delivering variance reduction. And the reason why 2009 saw a spike in new funds is because a large part of them wanted to short risk and have continued to do so and their numbers reflect that.
Where do you get this nonesense from? Have you any background in statistics, or are you just making this up? Picking a random smaller subset of a large group of stocks always leads to a poorer risk adjusted return, that's the bedrock of modern portfolio theory and not disputed by anyone. Maybe you heard once that randomly picking 50 stocks will outperform an average active pick portfolio manager, which may be true but is very different thing than what you said.