Hedge fund short sellers have best returns in seven years
A hedge fund index tracking short sellers recorded the strongest returns in seven years for last month as other strategies struggled in a weakened market.
Returns for data provider Hedge Fund Research’s HFRI Short Bias index were up 8.6% for June and 12.2% for the half year.
The last time the strategy recorded stronger performance figures was in February 2001 when it had returns of 11.7%.
Short sellers seek to profit from a decline in a share price by borrowing a security to sell and hoping to buy it back at a lower price.
Ken Heinz, Hedge Fund Research president, said although there is a correlation between a poor performance by the equity markets and positive returns by short bias strategies, it was unusual for it to be so strong.
In June, the S&P 500 index was down 8.7%, its worst monthly performance since September 2002.
Heinz said: “The single area of the [equities] market that was most significant was in [the financial sector]. They have been a focal point of equity markets for an extended period of time. It’s certainly plausible there was a meaningful level of exposure on the short side.”
Global macro funds, which take positions on exchange and interest rates worldwide, using derivatives, was up 2.75% for the month and has enjoyed returns of 12.6% for the year to date.
The HFRI index tracks the performance of 2,300 hedge funds. The HFRI Weighted Composite Index was relatively flat last month, down .68%
Heinz added: “If the goal of fund managers is to protect capital in negative environments coming into June the industry is essentially flat; it’s demonstrating a propensity to minimise exposure.”
Lehman Brothers has become a lightening rod for the issue of short selling.
In March, it was forced publicly to deny market rumours that it said were spread by short sellers seeking to profit from a decline in its share price, and it raised $4bn to offset losses. Richard Fuld, the chief executive of Lehman, has hit out at critics for rumour mongering, contributing to its dramatic share price performance in recent weeks.
David Einhorn, the head of hedge fund manager Greenlight Capital, which took a short position against the investment bank, has been an outspoken critic of the bank's performance.
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