Review: Investors flock to ‘macro’ hedge funds, but not only the old guard

Looks like certain hedge funds are back in style now. With the constant conveyor belt of hot new investments, as soon as something starts to lose its luster, there’s always something ready to take its place. This time, at least according to the article, it’s macro hedge funds.

Macro hedge funds are basically hedge funds that make bets on big trends rather than single companies or small slivers of a market. So if the manager thinks European markets are going to do poorly and China is going to do well, they will go short Europe and long China. They’ll find fancier ways of saying it to justify their fees, but that’s what it comes down to.

But this should sound really familiar. It’s just another (expensive) actively managed fund. Just because something is a hedge fund does not make it special. There’s nothing in the VIP room.

Hedge funds are not some special asset class for rich people. They’re just investment vehicles that operate under a less rigorous regulatory structure, and in exchange they (generally) only take investments from “accredited investors.” In other words, rich people.

Hedge fund managers do have more flexibility than managers of traditional actively managed mutual funds. But the evidence is pretty clear that hedge funds aren’t any better at beating the market than normal mutual funds. They’re just a lot better at marketing.

For more on how you should actually put your money to work, read our ebook A Minimalist's Guide to Understanding Financial Markets

 

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