Creditable Returns

While no readers have attempted to argue against the logic of investing passively rather than in actively managed funds, one person apparently has.

Hedge fund founder David Harding (now THAT's a surprise!) made a very weak attempt to defend his business, but came up a little short.

As one commenter on the Yahoo!Finance article said:

He did not give precise figures for returns. That pretty much says it all.

The full article: 

David Harding, founder of one of the world's biggest hedge funds, on Friday defended his firm against Warren Buffett's criticism of hedge fund fees last week.

Multi-millionaire Harding said Buffett has a "habit of being right" but added that his own Winton Capital business, which manages more than $30 billion, offered lower fees and creditable returns to investors.

Buffett told investors last Saturday that low-cost index funds are a better option for most than paying higher fees to managers who often under-perform, specifically hedge funds.

Harding is one of the first senior figures in the hedge fund industry to respond publicly to Buffett's comments.

"This is withering criticism of the active fund management industry overall, and it is hard to argue convincingly against," said Harding.

But Harding, who set up Winton in 1997, cautioned against tarring all firms with the same brush.

He argued that his Winton's funds have much lower fees than hedge funds are generally assumed to have and that the firm's risk-adjusted returns have been creditable. He did not give precise figures for returns.

Hedge funds made 5.51 percent on average in 2016, compared to losses of 1.12 percent in 2015 and gains of 2.98 percent and 9.13 percent in 2014 and 2013, respectively, according to data from Hedge Fund Research.

Arguing that his firm's returns have been 'creditable' but without offering any data to support that claim, is really a weak effort. His firm may well have lower fees than the average hedge fund, but that's a long way short of refuting Warren Buffett's claim that investing in low cost, index tracking funds is the optimal play for most of us.

I took the time to show how much you would have 'lost' investing 100 units in Hedge Funds versus the S&P 500 using the numbers provided in the article. In just four years, you'd be 33.9% better off with the latter, and that doesn't include re-investment of dividends.