7/21/17 – Stocks Near Record Highs, Hedge Funds Lagging

The S&P 500 reached new record highs this week before pulling back slightly today. The Dow was pulled lower on the week by disappointing earnings reports from Goldman Sachs and IBM. Numerous large companies reported earnings this week including Microsoft, GE, Philip Morris International, Colgate, Visa and Travelers Insurance among others. Generally companies have exceeded analyst estimates, but a few notable misses hurt the Dow index. Overall, it was a pretty quiet week, typical for the last couple weeks of July and first few weeks of August. Next week we’ll continue to get earnings report as well as the first report on 2nd quarter GDP. Many investors are anticipating to the GDP report since increasing economic growth has been a major talking point for the Trump administration.

Hedge Fund Performance and Taxpayers – Hedge funds are investment vehicles for the very wealthy and large institutional investors. They charge exorbitant fees on the promise of delivering strong returns. Most hedge funds charge 2% of the assets under management plus 20% of any gains. However, through the first half of 2017, hedge fund performance was roughly half the overall market, up only 4.8%. This was the best six-month period for hedge funds since 2009, in a market that has generally been strong. This poor track record has become a long-term trend for the sector, partially because of the fee structures. Where do taxpayers come into this situation? Many pension funds, both government and private sector, invest heavily in hedge funds. Many states and municipalities are forced to make sizable pension contributions because their investments haven’t performed like they expected. Pension funds are supposed to have a fiduciary responsibility to pensioners and yet many have endured years of poor performance even though the hedge fund managers have made millions, or even billions from managing pension assets. How much longer are governments going to ask taxpayers to fund large pension contributions when the investing side is under-performing while collecting huge fees? Read More

Oil declined this week, decreasing 2.1% to close at $45.61/barrel. The yield on the 10-yr Treasury moved lower, closing at 2.24% from 2.33% a week ago. The average rate on a 30-yr fixed rate moved lower this week, to 3.96% from 4.03% last week.

Close Weekly YTD
Dow Jones 21.580.07 (0.3%) 9.2%
S&P 500 2,472.54 0.5% 10.4%
Oil 45.61 (2.1%) (15.4%)
10-yr Treasury (∆ in bps) 2.24 (9) (21)

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