By Matthew Gutierrez and Shawn O’Malley
Folks, it took the S&P 500 a grand total of 511 days to reach a new all-time high on Friday. That’s the sixth-longest streak since 1950.
As the S&P hit another fresh high on Monday, financial “meme lord” Douglas A. Boneparth tweeted: “Congratulations to all the investors who did nothing!”
💭 Praise can also be extended to investors who did "a lil something” and those who “just kept buying.”
— Matthew & Shawn
Here’s today’s rundown:
Today, we'll discuss the three biggest stories in markets:
Hedge funds report bumper year
Howard Marks on rates, gold, and bitcoin
The growing number of dissatisfied workers
All this, and more, in just 5 minutes to read.
POP QUIZ
Chart of the Day
China has largely taken export share across key industries from the U.S. and Europe in the past five years
In The News
💰 Hedge Funds Report Bumper Year in 2023
Created by DALL-E using ChatGPT
It was a good year to invest in big hedge funds. Actually, it was one of the best ever. The industry produced $218 billion in gains after fees in 2023. The top 20 funds, in terms of total profits produced, captured about a fifth of all hedge funds’ returns.
These top funds returned roughly 10.5% last year, compared to 6.4% on average across all funds.
While small hedge funds typically specialize in niche strategies, the biggest are often “multistrategy hedge funds.” And Bloomberg reports they’ve been “gobbling up assets, talent, and leverage in recent years, causing unease among regulators.”
As mentioned, these big funds love leverage — they use borrowed money to juice returns. Doing so comes with higher operating costs, meaning higher fees for investors in these hedge funds. It also means more risk.
Regulators’ concerns about risk aren’t necessarily just for the (typically wealthy) investors in these funds but rather for the wider financial system. When playing with lots of borrowed money, big hedge fund blow-ups can spur or accelerate broader crises.
Why it matters:
Still, when it comes to others actively managing your money in investment funds, it often only makes sense to invest with the “best of the best” (you could’ve beaten most hedge funds with an S&P 500 index fund!)
Big, multistrategy hedge funds are the best of the best:
83% of all investment gains produced by hedge funds came from the top 20 funds. Although the top funds have the most assets under management, the point remains since these funds also delivered higher percentage returns on average.
As one investor put it, “These managers have been generating above average performance over several decades reflecting the persistence of their superior returns.”
The best of the best, of the best: Among the top tier of hedge funds, there’s an even more elite sub-tier. Citadel, Millennium Management, and D.E. Shaw & Co. are particularly dominant, generating a combined $71 billion in gains since 2020 — almost 40% of all hedge funds’ profits despite holding less than 5% of the industry’s assets.
Although your average hedge fund is probably packed with Wharton-educated, experienced investors, they struggle to beat their benchmarks after fees. The top 20 do better, but the top 3 stand like giants over the rest.
Recommended Reading:
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💰 Bitcoin or Gold? Howard Marks Sees Little Difference
Oaktree Capital Management’s Howard Marks
In a new Bloomberg podcast, Howard Marks weighed in on the investing climate, noting that the land of “0%” interest rates is likely over.
You might recall that Marks says the investment environment has undergone a “sea change” amid higher rates. Marks, a billionaire whose memos are read by top investors like Warren Buffett, says investors should be in a high-yield bond fund.
“Fixed income securities offer substantial yields today, and the return or yield on a fixed income security is virtually, by definition, safer,” Marks said.
Oaktree now manages roughly $180 billion in assets.
Reason for being: But Marks’ comments around bitcoin and gold are what generated headlines over the weekend. The Oaktree Capital Management co-founder and distressed-debt specialist said he doesn’t see much difference between bitcoin and gold. Both lack intrinsic value.
“You can invest in crypto because it's fun," Marks added. "You can invest in gold, kind of out of superstition, and people have been doing that for centuries."
Neither provides investors with cash flow, of course, which Marks looks for and defines as “intrinsic value.”
Why it matters:
Assets like stocks, bonds, and real estate are usually valued through their cash flows, either via expected interest, dividends, or earnings.
But Marks argues gold and bitcoin are only worth “what others are willing to pay for it,” which, we’ll add, is similar to a Pablo Picasso masterpiece and basically everything else on Earth. Marks also likened gold and bitcoin for their limited supply, which drives their values. There’s a finite amount of gold on earth, and there won’t be more than 21 million bitcoin.
While Marks (and many others) believe gold is a safe haven asset, a Bloomberg survey last year found that bitcoin topped the dollar to become the third-most preferred “safe haven” hedge during a U.S. government default.
Marks’ comments come after another famed investor, Ray Dalio, said he holds some bitcoin, joining fellow billionaire Bill Miller.
More Headlines
🇨🇳 Chinese stocks have worst start to a year since 2016
🦄 Voice-cloning startup ElevenLabs hits unicorn status
💬 Wayfair lays off 1,650 employees to save $280 million per year
🩺 How AI will and won’t change healthcare
🏘️ Four small cities to watch in 2024
⛽️ Sunoco to buy NuStar Energy in $7.3 billion deal
💼 More and More Workers Want to Change Jobs This Year
American workers are getting antsy.
About 85% of 1,000 U.S. professionals polled in a new LinkedIn survey say they’re considering changing jobs this year, up from 67% a year ago. About 90% of Gen Z workers — in their early and mid-20s — and 92% of millennials are considering a job change in 2024.
In other words, basically, everyone under 42 is looking elsewhere for work.
On the move: Millions of workers switched jobs during the past couple of years (so did we and many of our friends), usually for higher compensation or more flexibility like remote work and more vacation time.
But many workers are getting restless in their jobs — again? Part of the trend lies in workers watching their pay raises be eclipsed by inflation.
Scaling back: The job market has cooled off, but it’s still historically very good. That said, the job market for hourly jobs remains strong, though the number of job listings for finance, marketing, and software development has dropped below pre-pandemic levels, according to Indeed.
On LinkedIn, one job opening is available for every two applicants. A year ago, jobs outnumbered applicants two to one.
“The pendulum has swung back, and the power is in the hands of the hiring managers,” noted a LinkedIn vice president who tracks job trends.
Why it matters:
Many workers are wrestling with questions about work-life balance, income, and engagement. A Gallup survey, for instance, shows that the share of U.S. workers who feel engaged in their jobs slipped last year after rising in early 2023.
Switching pays: People who changed jobs in August 2022 received an average 8.4% pay bump. But by last month, the average pay bump dipped to 5.7%.
Plus, workers must weigh whether switching jobs is worth the risk.
While a new job might offer higher pay, career advancement, and more benefits, it could also come with the stress of changing working environments, pairing with a manager you don’t get along with, moving to a new city, and losing seniority.
Quick Poll
Yesterday, we asked: How many newspapers and magazines do you pay for? (Print or digital)
— Wrote one reader, “If it's not free, I don't read it.”
— A reader commented, “WSJ and NYT.” And another added, “Local, WSJ, Economist, Barron's.”
— We appreciated this one: “When there is so much good, free, and unbiased content (including this great newsletter), you don’t need to pay!”
TRIVIA ANSWER
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