The day after the US stock markets wiped out out most of the gains earned in the last seven years, the buyside is taking the hit and scrambling to recover. But some fund managers had the foresight to short stocks for what they saw as a pending correction.
Short sellers who bet that stocks would tank made big dividends yesterday. Hedge funds that aim to profit from global economic trends, a group that oversees some $550 billion, spent July putting on trades that profit from declines in equities, data from Credit Suisse Group AG showed. Owners of mutual and exchange-traded funds yanked $78.8 billion from U.S. shares in the first seven months of 2015, more than in any full year since at least 1993, reports Bloomberg.
According to Bank of America analysts, hedge funds that focus on equity investments have recently cut their net long exposure to 35 percent from 39 percent, writes Reuters.
This has been a tough month for leading US hedge funds. The New York Times reports that longtime market bull and Omega Advisors founder Leon G. Cooperman saw his fund lose 11 percent in August so far. The fund is valued at a reported $9 billion in AUM.
From the rhetoric coming out of the buyside, this is an unwelcome hiccup but is something that could prove healthy for asset values and markets overall. Some are viewing this as a bump in the road because they have a much longer horizon, said Anthony Perrotta, Partner, co-head of research and consulting for Tabb Group.
For some investors the volatility is not a good thing, especially if they are a leveraged investor. For those that make their living in trend mediation in trading of securities, the volatility is a welcome attribute in the marketplace, Tabbs Perrotta told Traders.
The news doesnt get better, according to the NYTimes:
What is clear, however, is that the numbers rolling in for August from the hedge fund industry do not look good. Hedge funds went into the sell-off bullish, with $1.5 trillion in long positions – bets that stocks will rise in price – compared with $684 billion in short positions, bets that stocks will decline in price, according to an analysis of the industry by Goldman Sachs.
The 10 stocks that Goldman said were the most widely held by hedge funds – stocks like Apple, Citigroup, Facebook and Amazon – were down from 5 to 10 percent over the last three trading days.
And there is more pain to come. Jeffrey Gundlach, co-founder of fixed-income investor DoubleLine Capital, doesnt see an end to Mondays sell-off. “The market is wounded and it takes time for people to get around to feeling good again,” Gundlach told Reuters. “You don’t correct all of this in three days.”
Traders will update this story as it develops.
