HFR: Hedge Funds Wilt In July Heat

Jul 29 2008 | 9:14am ET

The bad news continues for the hedge fund industry, which may be facing its worst month in at least five years.

Through July 24, Hedge Fund Research’s Global Hedge Fund Index is off by 3.2%. If that figure holds, it will be the worst month in the history of the index, which goes back to 2003.

Pessimism seems to be the major culprit this month, as with much of the decline blamed on bad short bets, including those of troubled mortgage giants Fannie Mae and Freddie Mac. Short-interest on the two soared 28% and 11%, respectively, during the first two weeks of the months, Bloomberg News reports, as concerns about their financial health reached a fever pitch.

Instead, both stocks rose in the wake of the proposed government bailout, burning hedge funds that bet against them.

Bets against homebuilders and European car maker Volkswagen also backfired, as did bets that oil would continue to rise.

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