Goldman trader on the one big reason why the so-called dumb money has beaten the pros this year

By Steve Goldstein

This is an environment suited for monkeying around, says one investor.

A Goldman Sachs trader has taken on one of the big questions in markets this year: why retail investors, who typically capture trends too late, have been beating the pros.

"At a macro dinner last night someone asked why retail keeps outperforming institutional money," said Rich Privorotsky, head of European One Delta trading at Goldman Sachs, in a note to clients. "Complex question but think, simply put, retail has remained risk-seeking while institutions have been cautious," he said.

Institutions have been "tethered to valuation and those pesky fundamentals," he added, while retail has been capturing the risk premia that the institutional crowd is not.

"Short term hard to ignore, long term unclear if its sustainable," he said.

It's easier to quantify institutional underperformance than retail outperformance. HFR's fund-weighted composite index of hedge-fund performance gained 10% through the end of September.

By contrast, the S&P 500 SPX through the end of September gained 14%, and the tech-heavy Nasdaq 100 QQQ increased 17%.

Some of the riskier plays in the stock market that are not profitable, like the quantum sector, have surged in value this year. Roundhill Investments this month re-launched an exchange-traded fund to track meme stocks.

A Goldman Sachs-created basket of "retail favorite" stocks, based on companies that are popular as measured by retail flow data, has gained 38% this year.

Bruno Schneller, managing partner at Erlen Capital Management in Zurich, made a similar, if even more brutal, point.

"This is a classic case of the 'dart-throwing monkey' beating the hedge fund," he told MarketWatch.

"When markets are driven by a narrow, powerful theme like AI, the aggressive, concentrated bets of retail investors are rewarded. Big money, with its layers of analysis and compliance, often moves too slowly to capture these violent rallies. This year, speed and conviction have trumped deep analysis and diversification."

Hedge funds by definition are trying to avoid significant underperformance, and managers also have career risk to consider. "That mindset leads to herd behavior and over-diversification, which can mute returns in a momentum-driven market," he says.

-Steve Goldstein

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10-23-25 0713ET