Why 60/40 Outperformed Hedge Funds

Barclays has estimated hedge fund investor returns to range between 10% and 11% in 2024, based on a weighted average across various investor types, such as pension funds, family offices, and private banks. This estimate aligns with Hedge Fund Research’s weighted composite index, which also reported a 10% increase last year.

In contrast, a simple 60/40 portfolio, comprising 60% stocks and 40% bonds, significantly outperformed hedge funds in 2024. Using the Vanguard Total Stock Market ETF (VTI) and Vanguard Total Bond Market ETF (BND), this approach delivered a return of just under 15%, according to the Lazy Portfolio ETF site.

Over the past five years, including the challenging 2022 market where stocks and bonds both fell, the 60/40 strategy averaged an 8% annual return. During the same period, hedge funds averaged just over 7%, with a 4% loss in 2022.

“The outperformance of a simple 60/40 portfolio in 2024 underscores a persistent challenge for hedge funds: justifying their higher costs,” said Bruno Schneller, managing partner at Erlen Capital Management, a Swiss asset manager.

Schneller pointed out that while hedge funds promote themselves as vehicles for diversification, downside protection, and alpha generation, their recent results indicate difficulty in consistently delivering on these promises, especially in low-volatility markets.

He advised investors to weigh the potential advantages—such as specialized strategies and uncorrelated returns—against the simplicity and cost-efficiency of traditional portfolio models.