Large money flows, mutual fund withdrawls, and money manager performances
Hi Billy and Pascal and everyone,
I read the "fight club" at Zero Hedge regularly. One very interesting and [URL="http://www.zerohedge.com/article/peak-portfolio-manager-frustration-goldman-weekly-chartology-update"]relevant post[/URL] concerns large money flows out of mutual funds and the frustrations of money managers. I'll quote its quotation of a GS report, in the spirit of fair use:
[I]Goldman's David Kostin puts it in the his latest weekly chartology, "Frustration is clearly evident across the portfolio manager community. The S&P 500 has returned 3.0% YTD compared with 2.7% for the typical large cap core mutual fund and 1% for the average hedge fund." It gets worse: "Investors of all styles are lagging their benchmarks. With just a week to go before mid-year, 78% of the large cap growth mutual funds are lagging the 3.6% return of the Russell 1000 Growth Index by a median of 150 bp. Similarly, 63% of large-cap value mutual funds lag the Russell 1000 Value index. Just under half (49%) of core funds are underperforming the S&P 500.[/I]
And:
[I]The levered investment community is faring no better than long-only institutions. The typical hedge fund has returned roughly 1% YTD. However, capital is still flowing into absolute return strategies as evidenced by our conversations with pension funds, endowments, and family office representatives attending two recent Goldman Sachs Capital Introduction events in New York and Rome. In contrast, mutual funds have experienced outflows totaling cumulative $6 billion during the past two months.[/I]
I see from the Robot's back test in 2008, that it faired very well under periods of cummulative withdrawls. I assume that while cummulative withdrawls from mutual funds is of interest, the final say will be in the tick by tick signals picked up by the EV programs. Is this a correct assumption?
I am nonethess fascinated by the mass underperformance of the so-called "smart money" (that is, the money flow that EV tracks). Apparently this smart money is not so smart after all. But how is it dumb? I assume it is dumb because it is large and slow. Moreover, the authors at Zero Hedge argue they are are sheep; John Thomas, "the Mad Hedge Fund Trader" has said the same.
It is noted in some comments that I suffer beginners luck, and this may be true. But based on the returns, I would qualify as a fund manager. Such a realization sets a red flag: Are our returns and expectations for returns (based, for example, on the performance of the Robot) unrealistic? Or do sharp minded individual speculators inhabit a different universe of some sort, where different laws and expectations can apply?
Aside from me, I have seen no one publicly state their returns, and I think this is reasonable. They probably vary widely. And while we share a goal, that is probably sufficient for working loosely together. Nonetheless, I'm curious what others think about the situation of fund managers in our current flat market environment?
Lastly, I'd like to direct this question to Billy and Pascal: Do you consider large in/out flows of captial into the system in any way aside from the tick by tick signals? Can either of you comment on fund managers and how they adapt to this difficult situation?
