Why You Should (NOT) Invest in Hedge Funds through 13Fs

I’ve done more articles on 13Fs than I can remember.  But I often get tired of hearing people repeat nonsense about 13Fs with no data to back it up.

Mark Yusko has a great oberservation in the below video, namely, the largest holdings are the WORST to follow.  However, there are a lot of people and funds that track the largest holdings.  Why?  Who knows, but likely they haven’t done the research.

For example, want to follow Baupost?  Great idea, top 10 holdings beat the markets but about 9% a year since 2000.  Want to follow Baupost’s top holding?  BAD IDEA.  Returns -0.9% a year, over 4% a year worse than the S&P.

Want to follow Warren?  About the same difference, 9% a year.

Across 20 of my favorite managers since 2000, investing in the top 1 idea underperforms investing in the top 10 ideas by 4% a year.  Massively bad idea. 70% of the funds top holding clone underperforms the top 10.

Still think the top holding is their high conviction idea?

(Source AlphaClone)