The Morning Brief: Humans Are Beating Computers

So much for the quant revolution…at least for now. Discretionary hedge funds — those where humans make the investment decisions — are beating out quantitative funds, which are computer-driven, for the past month and year. According to Preqin, discretionary hedge funds gained 1.06 percent in April, compared with 0.75 percent for the quant funds. Over the most recent 12-month period, the humans steered their funds to a 12.43 percent gain, while the computers only generated 7.09 percent returns. Altogether, the average hedge fund in its universe was up 0.76 percent in April and 10.67 percent for the recent 12-month period. It will be very interesting to see whether this trend persists.

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David Tepper’s Appaloosa Management reported two new positions among its top-ten holdings in the first quarter. They are banking giant Bank of America and General Motors, which is a target of an activist campaign by Greenlight Capital.

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Seth Klarman’s Baupost Group boosted its U.S. stock portfolio in the first quarter by more than 11 percent, to about $8.5 billion.

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Bridgewater Associates cut back its U.S. stock portfolio, including positions in emerging markets stocks, in the first quarter. The macro firm reported $8.8 billion in its U.S. equity portfolio for the March period, down from $10.5 billion at year-end. It generally devotes 75 percent or so of these assets to three exchange traded funds that bet on large specific markets.

In the first quarter, it reduced its position in its largest holding, the Vanguard FTSE Emerging Markets ETF, by 21 percent and in its third-largest holding, iShares MSCI Emerging Markets, by 43 percent. Its second-largest position is the SPDR S&P 500 ETF, the size of which remained essentially unchanged. To put its U.S. stock bet in perspective, Bridgewater altogether manages about $150 billion.

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The HFRI Emerging Markets (Total) Index rose 1.6 percent in April, boosting its gain for the year to 7.8 percent. It is also up 13.8 percent in the trailing 12 months, posting gains in 10 of the 12 months. Performance was led by the India Index, which gained 5.63 percent in April and is up 22.1 percent for the year. Altogether there was $205.8 billion invested in emerging markets hedge funds at the end of the first quarter.