Wikinvest Wire

A difficult summer for hedge funds

Monday, August 04, 2008

Since July produced the biggest monthly decline (in percent terms) for commodity prices in almost three decades, the chart to the right from today's Wall Street Journal report on lackluster hedge fund performance should show one doozy of a blue bar hanging down below the x-axis when it is updated next month.

The month of July will also go down as the worst month on record for the model portfolio at Iacono Research (see the graphic in the sidebar for details) and, thankfully, in another week, the monthly gain/loss performance data will be reset to zero and begun anew.

Interestingly, there have been six occasions over the last three years that produced greater declines over five-week periods - twice in the spring of 2005, twice in the summer of 2006, and twice last August - the severity of the July result has more to do with timing than anything else.

In any event, it's nice to see that I've got lots of company.

Hedge-Fund Sluggers Strike Out
In the world of hedge funds, it is harder to hide from the financial crunch.

Since the crunch began, these elite money managers have generated strong returns by focusing on areas such as commodities, emerging-market stocks or betting against troubled banks.

But as hedge funds as a group look set to turn in their worst monthly performance since July 2002, even those investment strategies that had been doing well have run into trouble. Some previously highflying funds are sustaining declines in the double digits. Several managers are down more than 20% for the year.
"It was a comeuppance month" for hedge funds, says Jay Krieger, who runs Fundamental LP, which invests in hedge funds.

Some funds that started July ahead of peers came out of it in the red. New York-based Jana Partners LLC's flagship fund entered July up more than 4% for the year but fell 9% during the month, hurt by falling prices of energy stocks, among others. The $5 billion Jana Partners fund, Jana's biggest, is now down almost 6% for the year, after delivering an average annual return since inception in 2001 of 20%.
I've been asked on a number of occasions to turn the model portfolio into some sort of managed-money account - sounds like a lot of work to me.

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To learn more about investing in natural resources using commonly traded ETFs, stocks, and mutual funds, see this description at Iacono Research. Or, sign up for a free trial.


Mathlete said...

We may already have the first loser: Anadarko Petroleum. They lost $1 billion in hedges.

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