09 January 2009 - Tammer Kamel
Three years ago we first published a simple chart showing the rank correlation between the S&P500 and “hedge funds”, where “hedge funds” were represented by the TASS hedge fund index.
The chart now covers 10 years and its interpretation is unchanged. The performance of the average hedge fund continues to be highly correlated with the S&P500. The indictment also remains the same: most hedge funds are highly dependant on healthy stock markets for good returns. This of course is largely because the vast majority of ostensibly alternative strategies latch on to one of a handful of risk premiums most of which correlate and in many cases depend on a generally healthy stock market.
Of course the data also continues to affirm that “hedge funds” do seem to protect capital during difficult market conditions while generating consistent returns from healthy stock markets.
| Year | S&P500 Return | Average HF Return | Rank of S&P Return | Rank of HF Return |
| 2003 | 26% | 15% | 1 | 2 |
| 1999 | 20% | 22% | 2 | 1 |
| 2006 | 16% | 14% | 3 | 3 |
| 2004 | 9% | 9% | 4 | 5 |
| 2007 | 5% | 13% | 5 | 4 |
| 2005 | 5% | 8% | 6 | 6 |
| 2000 | -10% | 5% | 7 | 7 |
| 2001 | -13% | 4% | 8 | 8 |
| 2002 | -23% | 3% | 9 | 9 |
| 2008 | -38% | -19% | 10 | 10 |