Money managers under the microscope
October may have been a strong month for markets (and therefore, by implication it seems these days, for hedge funds), but that hasn’t stopped some short-sellers from profiting.
Mike Nicol, manager of the Merrion European Absolute Return hedge fund, says he did well out of new short positions in housebuilders Barratt Developments and Taylor Wimpey. Both fell around 21 percent during the month, while the FTSE 100 rose 2.2 percent.
“The UK housing market continues to struggle and we believe that this malaise will continue for some time,” says Nicol.
HFRX’s short bias index is down 17.4 percent so far this year while the average hedge fund is up nearly 6 percent to end-September, according to Dow Jones Credit Suisse (and probably more after October) compared with the FTSE 100′s 8 percent gain. At least Merrion’s update indicates hedge funds don’t have to be limited by overall market movements.
The short-sellers are targeting bank stocks again.
Ok, it certainly isn’t on the scale seen in 2008, when hedge funds made small fortunes from the demise of Northern Rock and the like.
But it is interesting to note that after what could be termed a wave of good news — most banks passing the stress tests, a bumper earnings season and the easing of Basel III rules — some managers remain sceptical.
For better or worse, hedge fund returns have a tendency to follow markets, in part because most long-short funds are net long most of the time.
So after a huge rebound in the stockmarket this year, which has helped hedge funds make up some much-needed ground, October proved a difficult month when the market fell in the second half of the month.
Short-sellers have taken a lot of flak during the credit crisis, particularly last year when the slump in banks’ share prices eventually prompted the FSA and other regulators to temporarily halt the practice among financial stocks.
However, it is worth remembering that for all the headlines of huge profits made by John Paulson and others, the practice is not a guaranteed winner and can result in painful losses.
from Global Investing:
For permabears who live on doom and gloom to make money this is just a blip which is going to end in tears.
Sheltering from the credit crisis in so-called defensive stocks could prove a disappointment to investors and a great opportunity for short-sellers, according to Liontrust hedge fund manager James Inglis-Jones.
Inglis-Jones, who runs a hedge fund for Liontrust and who recently took on the First Income fund after the departure of star manager Jeremy Lang, has short positions in sectors such as tobacco and pharmaceuticals and has recently added more.
By Simon Falush
So you thought safe-haven pharmaceuticals and food producers were a safe place to shelter your assets?
Think again, says Crispin Odey, the well-known hedge fund manager who thrives on a contrarian approach to equity investing. He tells Reuters that defensives could be the next target for short sellers.