Equity markets continue to benefit from ultra-low interest rates and other moves by central banks aimed at stimulating demand in major economies.
"It all comes down to free money and that old saw—'don't fight the Fed,'" said Jeff Matthews, who runs Ram Partners, a Naples, Florida-based hedge fund.
Through the end of March, Credit Suisse's index that measures the performance of short-biased funds is down 4.4 percent, while its market-neutral index—measuring funds that match long and short bets—is off by 1.6 percent. In comparison, CSFB's broad index of all hedge funds is up 2.6 percent.
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Since October, long-short equity funds—which take long positions in stocks expected to increase in value and short stocks expected to decrease in value—have been gravitating more to long bets than at any time since August, according to the Credit Suisse data. In particular, they have been pulling back on unprofitable short positions taken earlier in the year.
"It has been unremittingly horrible for someone like me who has been long value, short over-hyped stocks," said Sydney, Australia-based short-seller John Hempton of Bronte Capital. "It would be more fun if I could go back to making money rather than spending my days thinking about risk management."
Investors like Hempton and Fleckenstein are happy to forget 2013 and 2014: the S&P 500 gained 29.6 percent and 11.4 percent in those years, while Credit Suisse's index of hedge funds with a dedicated short bias lost 25 percent and 5.6 percent, respectively.
Shake Shack squeeze
A number of names targeted by shorts are confounding the bears, including burger chain Shake Shack, and casual dining chain Zoe's Kitchen, both of which are nearly maxed out in terms of short-sale borrowing.
Most of Shake Shack's freely floating shares are not yet available for short bets because of lockup provisions that don't expire until July. That means just 3.6 percent of the float is being shorted - but that accounts for most of what is available through current lending programs, according to data from Markit, which tracks share-lending by big institutions.
Shares in Shake Shack, which were sold in an initial public offering at $21 in January, are now trading at $61.67 - they even rose during Friday's market plunge. Wall Street expects the company to earn 5 cents a share for 2015, which gives it a forward price-to-earnings ratio of an extraordinarily high 1,238.