Financials Burn Short-Selling Hedge Funds

Sep 16 2008 | 9:31am ET

It may be cold comfort to hedge fund managers and investors losing their shorts, but August, while bad, was not nearly as bad as July.

Such is the sort of “good news” the hedge fund industry is getting used to as its difficulties continue into the later months of the year. The latest bit of such news comes from the Credit Suisse Index Co., which announced that all 10 of its strategy indices and its three substrategy indices were in the red last month.

The Credit Suisse/Tremont Hedge Fund Index fell another 1.47% in August following July’s 2.61% fall. The decline leaves the index down 3.55% this year. Even the year’s best-performing strategy, short-selling, was battered on the month, falling 4.5%, though it remains up a healthy 10.09% on the year.

    

“Dedicated short-bias managers shorting financials were hit especially hard throughout the month,” Oliver Schupp, president of the Index company, said. But he added hopefully, “While all 10 sectors posted negative returns for the month, total returns were down less than the losses posted in July.”

Last year’s best strategy, emerging markets, continued to be this year’s worst, shedding a further 4% to bring its year-to-date losses to 10.03%. Managed futures funds also suffered disproportionately in August, losing 2.48%, though it remain sup 7.3% year-to-date.

The August losses leave just three of the 10 strategies, and one of the three event-driven substrategies, in positive ground this year. In addition to dedicated short-bias and managed futures, the lucky ones are global macro (down 1.37% in August, up 4.89% year-to-date) and risk arbitrage (down 1.16%, up 1.78% YTD).


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