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Market Neutral Funds Consistently Fail To Relever
The failure by HSKAX and HFRXEMN indices to generate any profits YTD indicates that traditional market neutral players are in peril of being markedly redeemed, or are currently in process. Who steps in to fill in the void is anybody's guess although some assumptions can be made.
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A big factor hurting market neutral funds has been that debt got so cheap late last year that fundamental players started rotating out of long-short equity positions and into convertibles, leveraged loans, etc. This drove up the price of junk equities and down the price of quality equities as people pulled out of those funds. The effect was accentuated when bandwagon types started imitating. Once the redemptions stop because people no longer see better opportunities in corporate bonds and such, the redemptions will stop creating an artificial bid supporting junky equities, and suppressing the prices of quality equities. And conversely, the popular trade of long credit with an inflation hedge in commodities will lose support.
Appropos nothing: Why would anyone still on his rocker be short junk equities coming off the market bottom (short-term or long term)? I though the playbook called for a long position in those?
If we assume a bunch of Market Neutral funds go under this quarter. Does anyone have an idea of total assets invested in these funds?
Lst time I checked in June or July, they had about 35 billion under management.
Who steps in to fill the void is a great question. Mo mo says it is levered long..
Tyler, what does relevering (in the title) have to do with poor performance? I don't know if you think it makes you sound smart to those who don't understand how HFs operate, but for those of us who understand the markets, titles like that show that you are full of BS. I'm getting tired of this crap from you.