Who are you calling mindless, Mr Odey?

Posted by Robin Powell on January 6, 2017


Crispin Odey is not a big fan of index funds. Odey, a City of London hedge fund manager and darling of the financial media, whose net worth at the last count was put at around £900 million, recently complained that “naturally skilled investors are being driven out by mindless passive investing”.

Alas, what natural skill Odey may or may not possess appears to have deserted him in 2016. His flagship fund — Odey European Inc. — has apparently reported a loss of 49.5% for the calendar year. Yes, you read that correctly: 49.5%. Indeed it could have been worse; the fund was apparently down 60% at the end of September.

As Bloomberg’s Lisa Abramowicz has noted, Odey hardly put a foot right all year:

“For example, he believed that UK stocks could slump 80% after Britain’s vote to exit the European Union, but they’ve rallied by 15.5% since then. He bet that shares of Ashmore Group and Anglo American PLC would fall in March; they rallied more than 10% in the first 14 days of the month alone.”

To explain how catastrophic this fund’s performance was you need to put it into context. Last year’s financial markets were almost universally benign. It was a year, in short, in which it was hard not to make money. Not only did Odey manage it; he lost his investors almost half of their money. Simply to recoup those losses the fund will need to double in size.

Of course, investors entrust hedge fund managers with their money in the hope that they will deliver performance over and above market returns. The reality is that hedge funds have now underperformed low-cost index funds for seven years in succession.

Dan McCrum in the FT has compared the performance of two different strategies over the past ten years — 1. investing $100 in hedge funds, and 2. putting $60 in US stocks and $40 in Vanguard’s Total Bond Fund. Using the dual index fund approach, that $100 investment would have turned into $184, while the average hedge fund investor would be left with $159.

McCrum describes the hedge fund sector as “the premium part of the asset management industry, cosseting its sharpest minds in the most luxurious offices”. It certainly commands premium fees and charges. In return, investors think they’re receiving a premium product, like a designer suit or a high-performance sports car — something, let’s face it, with social cachet.

In fact the real must-have investment vehicle has turned out to be a plain, dowdy and cheap-as-chips index tracker.

To quote William Bernstein: “You’re not going to impress the crowd at your country club by telling them you own shares of an index fund. Let them laugh; the joke’s on them.” It certainly was last year.


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Robin Powell

Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.


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