[fairity]

Interesting read, but the data seems extremely skewed.

Quote from the same article: "Eighty-eight of the 123 funds were go-go tech/Internet darlings that soared in 1999 but crashed after, losing 24.1% per year from Jan. 1, 2000, to Dec. 31, 2002."

So, it seems like the data comprising the "after-years" is highly skewed towards years when the overall market crashed, which explains the negative returns.

If your claim is true, shouldn't there be a fund that simply indexes the broad market minus top performing hedge fund holdings? If not, why not?

[inthewoods]

Most active manager performance is mean reverting. They have a good year, and then there is little evidence of persistence in their future returns. Here's a larger study from S&P:

https://www.spglobal.com/spdji/en/documents/research/researc...

"We observe little to no evidence of performance persistence among active managers, except in the large-cap value and real estate categories. For example, out of 1,034 large-cap funds that existed in the universe as of Sept. 30, 2013, only 19.73%, or 204 funds, outperformed the S&P 500. In the following year, 15.69% of those 204 funds outperformed the benchmark. By the end of the third year, none of those original 204 funds were able to outperform the S&P 500 on a consecutive basis."

What is implied from this data is that if a manager has a good year, they are unlikely to match it going forward. So only 20% beat an index, and then only 16% of those that did beat it the next year.