Hedge Funds Europe Debt Crisis
Hedge Funds Making Big Profits Off Europe's Debt Crisis
As the Euro zone's debt crisis deepens -- stocks fell again on Monday on news Greece will miss deficit targets -- investors who expect quick-thinking funds to snap up bargains in the sell-off or profit from short-selling may be disappointed.
"The smart money is not trying to predict the endgame. If you hang on, you can get a volatile position, your risk-management stops you out and you get a loss," said Luke Ellis, head of Man Group's (EMG.L) multi-manager business.
The extent of the volatility since August, and the speed with which sentiment can change, has left funds down 8.2 percent in 2011, according to Hedge Fund Research's HFRX index, with those making bold bets on how the crisis will end hardest hit.
"While you worry about the long-term, the short-term can kill you ... The smart money is using the swings and roundabouts of political debate to get into and out of trades," Ellis said.
He cited one manager who, while bearish on equities, closed out his short and bought tier one bank credit because investors had turned so negative on banks. Some funds also picked up Bank of America Merrill Lynch (BAC.N) bonds after heavy falls, one executive said. Source