Buffett and Hedge Funds Share a Trait: No Alpha
Aaron Seager, a portfolio manager at Arbor Hill Advisors, offered up the following charts showing alpha over the past 15 years for Warren Buffett and an index of Hedge Funds.
Humbling to say the least…
Warren Buffett’s Alpha
Warren Buffett arguably runs the most famous “value investing fund” in the world. His performance record over the past 50 years is extraordinary. But how has he performed over the last 15 years?
Below we highlight the 5-year annualized rolling alpha estimates of Berkshire relative to the S&P 500 (daily data of BRK/B-RF on SPY).
The pattern over the past 15 years is not on a positive trend…
Hedge Fund Alpha
Hedge fund managers are considered the “masters of the universe” with their sophisticated organizations, slick marketing mechanisms, and extraordinary fees. How have the masters of the universe fared in recent memory?
Below we present the 5-year annualized rolling alpha estimates for hedge funds (monthly data on CS DJ Equity L/S HF Index on S&P 500 TR Index).
Again, the pattern over the past 15 years is not on a positive trend…
Simple alpha estimates aren’t the end-all-be-all for performance assessment, and perhaps they are influenced by an underlying pattern in risk-free rates, but the trend to zero for some of the smartest people in the marketplace is not inspiring!
If Warren Buffett and the hordes of high IQ hedge fund managers can’t generate alpha, who can?
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Definitions of common statistics used in our analysis are available here (towards the bottom)