Without question, this has been the quarter from hell for the hedge fund industry.
It hasn’t helped that the big cap S&P 500 Index (SPY), has cratered by 14% and then immediately rocketed by 14% three times in the last 18 months, with NO net movement overall.
The latest rally has seen the biggest move up in stock prices since Franklin Delano Roosevelt was first sworn in as president in 1933. I remember it like it was yesterday.
This is your worst trading nightmare.
Such is the price of saying bon viage to America’s aggressive monetary policy of quantitative easing.
Speaking to managers and traders around the globe, my compatriots are either having a terrible time, or they are going out of business. I am one of a hand full eking out a small gain in 2016.
See…. after a half century, this business starts to get easy.
According to Hedge Fund Research, a commercial database, last year was the worst for hedge fund liquidations since 2009. Some 979 funds ran up the white flag, compared to 864 in 2014.
New hedge funds are coming to the fore at a declining rate. Only 183 started up during the fourth quarter, versus 269 in Q3. And they are raising smaller amounts of money with tighter terms.
In January alone total hedge fund assets under management shrank by $64.7 Billion, thanks to redemptions and market losses. They fell again in February to $2.95 billion, the lowest since May, 2014, according to eVestment, another research firm.
Hedge funds are not only the victims of the recent extreme market volatility; they are the cause. Far and away the best performing stocks in 2016 are those with the greatest hedge fund short positions.
Those would include holdings in the energy, commodities, industrial, retailing, and precious metals industries.
Of course, everyone in the know was aware that the market was heading for a pasting at the beginning of the year. That’s why I started buying naked puts in the S&P 500 (SPY) for the first time in ages.
