the Most popular strategy game in the stock market, used hedge funds and long considered a win-win, stopped working, writes Bloomberg. The investment company Lansdowne Partners forced to close its hedge Fund because of the loss on the background of the pandemic coronavirus.
Initially, hedge funds were conceived as a means of earnings in the volatile (changeable too) market. Their main strategy is to distribute investments between buying assets in the hope to increase and selling (short positions) in case of a fall.
This approach allows us to compensate for the frequent price fluctuations: losses in some positions are compensated by the profits in others. However, in a situation too strong deviations in either direction, the strategy fails because a loss on one of the positions is prohibitively large.
normally, Fund managers have shifted from one asset to another and thus prevent losses. This year it was harder because of the panic that gripped many investors on the background of the pandemic coronavirus.
Since the beginning of the year, the us market has experienced two shocks. First, in March, stocks of major companies and the major indexes fell, causing 87 percent of hedge funds included in the index Bloomberg suffered a loss. Then the market began to recover, helped by two reasons: the active support of the state and continued low rates that make unattractive investments in bonds.
In the late spring and early summer, US stocks showed strong growth, despite the ongoing pandemic, the explosion of unemployment and mass protests for the rights of blacks. Analysts expect that future growth will continue, and so will remain skewed in favor of the profitability of long positions and short loss.
both private and institutional investors increasingly disillusioned with hedge funds, seeing them as not a protection against market swings, and even more risky compared to conventional tools for a living. Example Lansdowne Partners is preparing to follow Sloane Robinson investment company, announced the closing of two funds by the end of the year.
however, investors still do not understand what to replace the hedge funds with their approach, which was considered verified. “If the short positions do not help during a crisis, what can do to help?” — asks the founder of namic, Beta Investments Andrew bir. The current situation he describes as an existential crisis of investments.