Here is a Yahoo Finance article of what hedge funds invested in: https://finance.yahoo.com/news/hedg...ven-not-complicated-strategies-213127824.html Here is the write-up: Hedge fund investors pay huge fees to gain access to premium investment opportunities that can come in the form of obscure asset classes, no-name stocks, and complicated structured trades. However, recent performance for many big hedge funds have been driven by popular, liquid stocks that anyone can buy by calling up their retail broker. “Hedge funds continue to hold their largest net weight in the Information Technology sector,” Goldman Sachs analysts said. “The Tech sector accounts for 27% of hedge fund net exposure, the largest wallet share among sectors.” Approximately 81 of the hedge funds held Facebook as a top-ten long position and 75 owned Amazon. Meanwhile, 52 held Microsoft and Amazon in their top holdings and 59 invested in Alibaba. The report also found that the average hedge fund had around 68% of its long portfolio in its top ten positions. Technology stocks have boosted hedge fund performance in 2017 Goldman’s basket of the 50 most popular stocks, known as the “very important positions” (VIP), returned 25% year-to-date as a group, beating the S&P’s 17% gain in that time. Much of that performance, however, was driven by those top five tech stocks, with names like Facebook rising 56%, Amazon moving 52%, and Alibaba jumping 111%. Hedge fund investors — i.e., pensions, endowments, and foundations — allocate money to different types of strategies ranging from long/short equity to event-driven to distressed-debt to global macro. The idea is that these strategies should be difficult to replicate. These investors also shell out fees to the fund managers. Typically, fund managers are paid through a compensation structure commonly known as the “2 and 20,” which means they charge investors 2% of total assets under management and 20% of any profits. The fees can vary from fund to fund, with some charging less and others more. Of course, as investors review their quarterly statements and see popular tech names driving returns, at least some will be asking if they could’ve gotten the performance from buying shares of those stocks themselves. Julia La Roche is a finance reporter at Yahoo Finance. I am really surprised and always thought they had very sophisticated investment models and invested in complicated deals that us small retails are not privy to.
If you wanted to be charitable to the HF community, you could say that, oftentimes, the art isn't in finding what to buy/sell, but in finding when and how much. That is to say, HFs might argue to their investors that they're good at market timing and/or that they know how to optimise their leverage.
Sophisticated models and investment process does not mean complicated or illiquid products. Most of the HF industry are long/short PM. While investment process is pretty smart but the final result is simple. They buy stock in companies they perceive as under-priced or short stock in companies they perceive as overpriced. Same goes for stat arb, risk arb, special situation etc.
Would not be prudent to be buying into companies where when had to come out, be causing one's own slippage. And buying obscure companies, you end up buying entire company and they lied bout the financials and now you stuck with a huge lemon. I think many of Hedge Funds are no different than mom and pop investors, few are big winners and very few keep it up year to year.