The Top 5 Hedge Fund Managers Today – and What They’re Buying

hedgehog

Hedge funds are supposedly where the smart money is being invested. But most hedge fund managers underperform the market. These five hedge fund managers have done quite well.

In his fifth career—as an investment manager—Alfred Winslow Jones contributed $100,000 to create the first hedge fund for wealthy investors in 1949. It is speculated that the skills he picked up in his previous careers working on a steamship, and as a diplomat, sociologist, and journalist served him well as a hedge fund manager.

Today, the hedge fund concept is alive and well. Catering to “qualified” investors—those with $1 million or more to hand over—there are now some 2,700 such funds, according to the United States Hedge Fund List. And, as you might imagine, they are primarily headquartered in the well-heeled enclaves of New York, Chicago, San Francisco, Dallas, Greenwich, and Boston.

Hedge funds became very popular in the 1990s and grew rapidly, gathering assets of more than $1.93 trillion by the time the 2007-2009 recession hit. They suffered a setback during the hard times, as many of them began limiting investor withdrawals. However, all was forgiven, and hedge funds have since rebounded, and now hold an estimated $3.1 trillion.

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Like a mutual fund, hedge funds pool investor funds in order to make some pretty hefty investments—which, in many cases gives them enough leverage to buy large ownership positions in companies, to get a seat on the board, or at the very least, change company policies and strategies.

And speaking of leverage, many hedge funds are highly-leveraged, which they do to increase their returns, and that is a big risk for investors and can—and often does—lead to huge losses. The funds can also increase risk by investing in land, real estate, stocks, derivatives, and currencies, unlike mutual funds or ETFs, which are mostly limited to stocks and bonds. Additionally, hedge funds come with several other disadvantages:

Illiquidity: This arises from investing in illiquid securities that may have long lockup periods or a longer-than-usual notice for redemptions.

Limited access: As I mentioned above, if you don’t have deep pockets, you won’t be welcomed as a hedge fund investor.

High fees: Investing in a hedge fund is usually more expensive than investing in mutual funds or ETFs. These funds’ annual asset management fee can add up to 1-2%, and most include a performance fee of 20% of a hedge fund’s profit.

Taxes: Depending on the structure of the fund and where it is located, investors may find themselves paying income rather than capital gains taxes.

How Well Do Hedge Funds Really Do?

You see hedge fund managers like Bill Ackman, David Tepper, and Carl Icahn on CNBC all the time. The journalists spend lots of time trying to figure out what these wealthy managers are buying for their funds.

But when you look at their returns, you may want to ask yourself why anyone—other than their investors—care.

As you can see from the following graph, the average return of hedge funds over the past 18 years has greatly lagged a portfolio of 60% global stocks and 40% U.S. bonds.

As this chart reveals, hedge fund managers have been underperforming for years.And despite a pretty good market this year, according to evestment.com, in June, hedge funds averaged gains of +2.07% in June, for a year-to-date total return of -3.37%. Evestment says that only 40% of the industry has produced a positive return this year, with the average gain +9.12% while the average decline is -10.85%.

Meanwhile, the Dow Jones Industrial Average, the S&P 500 Index, and the Nasdaq have posted returns of -0.014%, 5.5%, and 26.3%, respectively, in 2020.

The Top 5 Hedge Fund Managers

Nevertheless, there are some hedge fund managers who have done very well. According to TipRanks.com, here are the Top 5 Hedge Fund Managers (out of 200), who have made the most money for their investors over the past three years: 

Manager Fund Portfolio Value ($) Avg. 3-Yr. Return (%)
John Kim Night Owl Capital Management 419.52 million 49.8
Andy Brown Cedar Rock Capital Management 4.11 billion 33.9
Chuck Akre Akre Capital Management 13.72 billion 38.7
Phillippe Laffont Coatue Management 11.37 billion 42.7
Steve Mandel Lone Pine Capital 19.79 billion 34.3

What are Hedge Fund Managers Buying Today?

And while most hedge fund managers lag the market, investors still want to know what the “big money” is buying. The answer: mostly Technology (31.23% of investments), Services (18.55%), Financials (15.77%), Healthcare (13.77%), and Consumer Goods (7.92%).

WalletHub.com recently surveyed 400 of the largest hedge funds to see what they were buying, and here are their Top 10:

10 Most Popular Hedge Fund Stocks

Rank Name of the Company Ticker Change
from Last Quarter
1. Apple, Inc. AAPL
2. Amazon.com, Inc. AMZN
3. Microsoft Corp. MSFT
4. Facebook, Inc. FB
5. Visa, Inc. V
6. Alphabet, Inc. GOOG
7. salesforce.com, Inc. CRM
8. Mastercard, Inc. MA
9. Tesla, Inc. TSLA
10. Adobe Systems, Inc. ADBE

Source: WalletHub.com

There you have it—this is where the big money is going. As you can see, it’s mostly in tech, where values have climbed to the stratosphere this year. My advice—it’s always good to see where money is flowing, as that helps boost stock prices, but it’s always wise not to chase momentum too high.

Nancy Zambell

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Comments

  • David D.

    The thing highest in investor minds right now is, “Will a Biden election be followed closely by a serious downturn in the economy and bear market?”. How to plan for this?

  • Frank A.

    in looking at the securities that these hedge fund managers purchase, my question is…who needs them…just watch CNBC….read Wall St Journal and IBD and you’ll have same stocks theses fund managers favor…

    • Nancy Z.

      Thanks for your comment, Frank, and you are correct. As I said in my article, the hedge fund managers are always on CNBC, so you can usually figure out what they are doing. But, as I also mentioned, they don’t have the greatest of track records–mostly due to the leverage and high risks they employ.

      Many thanks!

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