New York (HedgeCo.net) – The hedge fund industry has come under fire in recent years as the overall performance has lagged the S&P 500 and investors began to question if the fees paid to hedge funds were worth it. Given this backdrop, the hedge fund industry should be encouraged by a recent study from a Harvard economics doctoral candidate.

Jonathan Rhinesmith issued a paper entitled “Conviction and Volume: Measuring the information content of hedge fund trading,” and the paper’s findings were featured in a recent CNBC article.The article featured the following quote from Rhinesmith: “My research has found that at least historically, hedge funds have actually done pretty well, especially when you make that comparison to a monkey throwing darts.”

Beyond the quote of beating a monkey’s dart-throwing portfolio, what Rhinesmith’s research showed was that the highest conviction trades from hedge funds tended to rise in price the most. His research covered $4.3 trillion in stock purchases that were based on 13f filings. However, Rhinesmith echoed something that our affiliate company, HedgeCoVest, has expressed and that is that investors that try to follow 13f filings to mirror a hedge funds strategy is unlikely to experience the same performance. “By the time these filings are made publicly available, hedge funds have actually already moved prices so much that there’s not as much juice in the trade,” Rhinesmith stated.

Rick Pendergraft
HedgeCoVest
Research Analyst