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Hedge Funds Thrown Into Negative Territory

Add hedge funds to the list of asset classes now negative on the year.

Hedge funds declined by more than 2 percent in August, according to new data from Hedge Fund Research. While that performance significantly outpaced the S&P 500 (which lost roughly 5.7 percent over that same period), it has thrown the industry into negative territory for the first time in 2011.

“The volatile environment for hedge funds in August exhibited certain similarities to the Financial Crisis of 2008,” Hedge Fund Research CEO Ken Heinz said in a press release.

In a phone interview with CNBC Thursday, Heinz explained those similarities.

Rose | Mueller | Stock4B | Getty Images

“Equity hedge and event-driven strategies showed the weakest performers,” said Heinz. “At the same time the macro strategies appeared to be most tactically positioned for [market] weakness…that emulates almost exactly what we saw in the August through November timeframe in 2008.”

Equity and event-driven hedge funds notched losses of roughly 4 percent in August. It was the fourth consecutive month of negative returns for those funds, the longest string of drawdowns since the 2008 financial crisis, according to the data. Macro and fund-of-funds were also in negative territory for the month.

One notable bright spot for the industry however, was the trade to short the market. Shorting a stock, simply put, is a bet that it will decrease in value rather than rise.

Hedge funds that were steadfast in shorting the market were rewarded with gains of roughly 7 percent.

As markets continue their wild streak, that market short is quickly becoming the trade du jour among hedge fund managers.

A recent analysis of hedge funds by Bank of America-Merrill Lynchnotes that the industry had roughly $33 billion in short bets on S&P 500 futures in August, up more than $8 billion compared to July—making it a trade the bank classifies as “the most crowded since late 2007.”

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CNBC Data Pages:

Symbol
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S&P 500
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