2019 Bogleheads Hedge Fund Contest

The Bogleheads Hedge Fund Contest is an annual affair in which contestants try their hand at security selection. The contest is usually announced on January 1 and is open for entries for one week.[1] Needless to say, the contest is recreational. Contestant portfolios are not invested. The entries are placed in a spreadsheet, where the positions are tracked during the year. The Rules for the contest (from the contest managers) are outlined below:

  • Pick a fancy name for your hedge fund.
  • Before 9:30 am EST on 7 January, in this thread, pick up to three stocks to go long and up to three to short. Equal dollar amounts are placed on each position, long or short.
  • Opening prices will be based on Jan 7th close.
  • No trades during the year, except that you can elect at any time during normal exchange business hours to “freeze” a price for any individual position at that day’s closing price, i.e. liquidate any position. (Each position carries this option; you can choose to freeze different positions on different days.) Other than that, you’re stuck with what you choose for the year.
  • If a stock is taken out in a merger or a bankruptcy during the year, we will do our best to do the right thing. An all cash offer will result in a freeze at the takeout price. An all stock offer will result in the conversion of the position to the acquiring company’s shares. Mixed cash and stock offers, you’ll just have to trust me to saw things off fairly.
  • The universe from which to choose is the Russell 3000. Dividends are not counted

2019 contest results

The 2019 contest attracted 71 entries. The complete final return results are available in the 2019 Hedge Fund spreadsheet. As can be expected the end results are widely dispersed ranging from a top return of 98.51% to the lowest return, -61.70%. The range of returns is illustrated in the chart below.

42 portfolios over 0%; 29 portfolios under 0%

Since the contest pool of investment selections are US stocks, which are both long and short positions, the 2019 benchmark selected by the contest managers is a risk-adjusted benchmark 9.39% return. The average contestant portfolio return of 8.01% resulted in a -1.38% shortfall for the average contestant. In percentage terms, 61% of contestant portfolios under performed the benchmark. [2]

Benchmark return 9.39%

Portfolio performance results are skewed by the dramatic range of returns. The twenty-eight out performing portfolios provided a 34.19% average return with a median return of 22.53%. The under performing portfolios provided an average -8.67% return with a median return of -7.49% .

Notes

[1]The 2020 Bogleheads Hedge Fund Contest was announced on January 1, 2020. Results are tabulated at Current Standings -2020 hedge fund contest.

[2] For additional comparative purposes, the Vanguard Market Neutral Fund, whose mandate is to hold both long and short stock positions, returned -9.57% in 2019. Seventy-four percent (74%) of contestant portfolios out performed the fund. (Data and calculations from this google spreadsheet).

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