The $3 trillion hedge-fund industry tumbled probably due to two important effects. On the one hand, Greece’s debt situation and on the other hand the recent performance of the Chinese stocks. In simple words, June was a bad month for stocks and for hedge funds, too.
The Hedge Fund Research HFRI Weighted Composite Index dropped 1.3% and that percentage is its worst monthly loss since June 2013. In June, the HFRI Macro Index fell 2.4% and ended with the year to date gains of that index. In line with this, the SPDR S&P 500 ETF Trust (SPY, Financial) returned a negative 2.5% in June, but the total returns for the index for the year through Jul 14 was 2.3%.
Despite this, the HFRI EM China index fell 3.5% in June, but yielding 19% on a Year-To-Date basis at the end of the month. According to what have been said so far, it seems that the only way to win in June is through short positions. The HFRI EH Short Bias Index gained 0.3% during June, but remains down when considering the entire year.
Daniel Loeb (Trades, Portfolio)’s Third Point LLC lost 0.8% in June, reducing the yield obtained throughout the year. Also, David Einhorn (Trades, Portfolio)’s Greenlight Capital lost 4.3% and is down 3% for the first half of the year, according to a note sent by the company. In the communication to clients, Greenlight said that June’s losses were obtained due to two bets: the long position in Micron Technology Inc. (MU, Financial) and Consol Energy Inc. (CNX, Financial). The fund lost betting on Greek bank stocks but said that “was not a major detractor from performance and our remaining exposure to the Greek banks is less than 1% of capital.”
Hedge funds look particularly attractive for a diversifier investor. The fact that the hedge fund universe includes a wide variety of financial assets strategies makes it difficult for them to outperform in a bull market.
This year, some hedge-fund managers have been beating their benchmarks in a scenario where the health-care sector saw mergers but Greece’s troubles and China crashing.
The truth is that hedge funds have not been able to beat the market in the latest years. But according to the performance in a year-to-date basis, we continue expect to happen for the upcoming year. To reach that, hedge funds must reduce their exposure to Greece in the case the Greek crisis worsens.
Disclosure: Omar Venerio holds no position in any stocks mentioned.
