"Hedge funds have little to brag about halfway through 2012, with some of the industry's biggest names reporting only small gains and trailing the benchmark U.S. stock index by a wide margin.
Paul Tudor Jones' flagship fund is up 1.59 percent through the third week in June and David Einhorn's biggest portfolio is up 3.7 percent in the first half, while Daniel Loeb told investors that his largest fund rose 3.9 percent during the first six months of 2012, investors in the funds said.
Compared with a year ago when many hedge funds were losing money, these returns might be something to cheer, especially since they beat the benchmark HFRX Global Index's 1.22 percent gain.
But they pale measured against the 8 percent rise in the Standard & Poor's 500 stock index during the first half, with the $2.1 trillion industry failing to wow at a time that public pension funds are increasingly turning to hedge funds to shore up returns.
The industry's underperformance may again raise questions whether it makes sense for institutional investors to pay hefty fees to hedge funds when they can earn better returns from low-cost index funds. Unlike most other portfolios, hedge funds take a management fee plus a performance fee that is often 20 percent or more.
EUROPE HURTS AGAIN
Europe's seemingly endless debt crisis is getting much of the blame for the year's anemic returns, but concerns about U.S. growth and how China will perform are also making for uncertain trading conditions, experts said.
With the steady stream of European news making for what traders are calling excessive volatility in the short term, hedge fund managers betting on big events are having a tougher time, experts added.
"People are over-managing their positions," said Peter Rup, chief executive and chief investment officer at Artemis Wealth Advisors, saying that funds moved to short positions only to see those turn against them when markets rebounded after having tumbled."