A Performance Update-Hedge Funds versus Hedged Mutual Funds: An Examination of Equity Long-Short Funds

This article presents a performance update for the equity long-short mutual funds that were first described and analyzed in McCarthy (2014), extending that analysis to the period from July 2013-December 2019. The analyses confirm that the equity long-short mutual funds provide investment exposure similar to leading equity long-short hedge fund indexes. However, in this later time period, they underperformed the S&P 500 Index and traditional hedge fund indexes. In addition, none of the indexes (i.e., the Index of Equity Long-Short Mutual Funds, the H FRI Equity Hedge Fund Index, the DJ-CS L/S Equity Hedge Fund Index, or the CISDM Equity Long-Short Index [as modified]) had positive risk-adjusted returns, as measured by alpha over this later period, and none of the 24 equity long-short mutual funds with full data for the period from July 2013-December 2019 had positive alpha. This article also presents data on the lack of performance persistence across the equity long-short mutual funds, analyzes the considerable change in asset sizes of some of these funds, reports on the closure rate of equity long-short mutual funds over this time period, and notes the positive relationship between excess performance over the S&P 500 Index and equity long-short mutual fund net asset flows. Finally, the appendix broadens the analysis to include equity long-short mutual funds started after July 2013. The performance results from this expanded universe of funds is materially the same as the original sample of mutual funds from 2013.