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Your Money's All Gone...

Written By Brian Hicks

Posted December 19, 2011

It’s been a year of hell for stock funds and clients alike.

According to USA Today:

“The average diversified U.S. stock mutual fund has fallen 5.9% this year, vs. a 1.4% loss for the Standard & Poor’s 500-stock index, says Lipper, which tracks the funds. Out of 8,036 funds, 7,399, or 92%, are showing a loss — and some are doozies.

•Perennially snakebit Apex Small Cap has fallen 41% this year.

•Rochdale Mid/Small Growth fund tumbled 36.1%.

•Legg Mason Capital Management Opportunity Trust, managed by former star manager Bill Miller, is down 35%.

One reason the average fund has lagged so badly: expenses. The average fund charges about 1.3% a year to pay for salaries, offices and other costs, according to Morningstar. Stock indexes have no expenses.

Also, stock funds tend to invest in midsize and small companies, which have lagged behind the S&P 500. The Russell 2000 small-cap index, for example, has fallen 8.4% this year.

Another reason is technical: Lipper’s average U.S. stock fund figure includes many new funds that use futures and options to amplify gains and losses. Without those funds, the average loss for U.S. stock funds would have been 4.1%.

Thanks to the European crisis, international funds have been smacked even harder: The average large-company international fund has plunged 15.5%.

Some specialized funds have tanked even more. Direxion Daily Real Estate Bear 3X, which uses futures and options to amplify performance up and down, plunged 57.7%.”

Good thing we were on the right side of the market, huh?

As we told you on December 15:

Investors are aggravated. You’re aggravated. The whole world is aggravated.

And, well… we’re sorry for that.

Investors like you pulled more than $9 billion out of hedge funds in October alone — more than triple the $2.59 billion outflow in September.

Failing fund managers, much like the ones you entrusted thousands of dollars with, are telling customers:

“We are disappointed and we apologize. [This] was the worst in the firm’s 17-year history. As the year progressed our assumptions proved overly optimistic and net equity exposure too great.”

The above quote is from John Paulson, the same guy who reported these Q3 2011 numbers:

  • Paulson Advantage: -32.57%

  • Advantage Fund: -45.35%

  • Credit Opportunities Funds: -19%

  • Credit Opportunities II: -15.31%

  • Paulson International Ltd: -10.40%

  • Paulson Partners LP: -9.89%

  • Paulson Enhanced Ltd: -22.41%

  • Paulson Recovery Funds: -31%

  • Paulson Gold Funds: +1%

This downward performance trend becomes a bit more apparent once you look at his competitors’ performance. 

Just about every hedge fund lost their investors gobs of money.

  • Pimco’s Bill Gross made a huge bet against U.S. Treasuries this year. He was wrong.

  • Fairholme’s Bruce Berkowitz’s investment in banks was a bad bet. His Fairholme fund dropped about 30% this year.

  • And Legg Mason’s own Bill Miller stepped down from the Legg Mason Value Trust Fund.  Another fund he runs is down nearly 34%. 

They Were Wrong

Europe was a disaster this year. Hopes for a solution came and went. America was fighting off a depress, err, recession. Occupy Wall Street was camping out all over the country. John Corzine can’t find billions of dollars. 

Gold and silver ran to record highs. Housing still didn’t find its bottom. Hopes for QE3 sent the market rocketing, only to peter out in the months that followed.

Here we are, hugging the same flat-line we started 2011 with…

It’s been quite a year to forget.

Getting it Right

But for some, it’s been one of the greatest years on record. 

Friedberg Global Macro is up some 54% this year with bets that markets in India and Brazil would fall, European banks would crash, and U.S. Treasuries would rise. The firm now believes, as do we, Europe is headed for a massive credit doomsday, and that we’re all headed for a global depression.

Tiger Global is up 40%, betting with early stakes in Facebook and LinkedIn.

And I’m up more than 22% on the year.

You see, while hedge funds were struggling to keep their heads above water, my average for the year is close to +22% with closed positions.

In fact, I’ve closed more than 42 winners and only 10 losers since August 2011.

Read more here.