From Grant Wasylik, editor, The Palm Beach Letter:

Hedge funds are shutting at a pace not seen since the financial crisis. Almost 500 funds closed in the first half of 2014. If the pace picks up a little, it may be the worst year for closures since 2009 (1,023 hedge fund liquidations).

What’s going on?

Another year of lousy performance. The average hedge fund is up 2%… compared to the S&P 500’s 13.75% gain. This isn’t acceptable for individuals paying the infamous “2 and 20.” With annual fees of 2% and a 20% profit grab, there isn’t much left over for investors. So they’re heading for the exits… in droves.

I’m surprised it’s taken this long… Burton Malkiel, the economist who wrote A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, once said:

Hedge funds are far riskier and provide much lower returns than is commonly supposed.

Malkiel was right. It hasn’t been just one bad year. Hedge funds have underperformed the market for quite some time. The HFRI Hedge Fund Weighted Composite Index—which tracks 2,200-plus hedge funds—is up 4.9% (annualized) over the last five years. The S&P 500 Index returned an annualized 15.7% over the same time period. That’s massive underperformance during this current bull market run.

Now you may be wondering how The Palm Beach Letter’s Performance Portfolio stacks up against the average hedge fund… (Hint: It’s a blowout.)

While the average hedge fund has returned 2% this year, our Performance Portfolio is up more than 11%. And if you eliminate our two bond proxies, we’re up almost 13%. That’s about six times the return of the average hedge fund.

And this only includes picks we made prior to 2014. We also have several recommendations made this year that are performing nicely…

  • One pick is up 11% in two months
  • Our August recommendation has gained 20% in four months
  • Another pick is up 17% in nine months
  • And a fourth pick has jumped 30% in 10 months.

No hedge fund investments? Pat yourself on the back. You made a good choice: The Palm Beach Letter, at less than $100 per year. No annual fees. No highway “profit” robbery. No complex derivatives that you can’t understand. No regulators knocking at our door. And we’re available to the general public… with full transparency… and far better returns.