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Traders' Corner: Fund Run

Submitted by scnradmin on Wed, 10/01/2008 - 22:28.

One of the main reasons that investors give their hard earned capital to Hedge Funds to invest for them is that these "wizards of Wall Street" are supposedly smarter and more savvy than other more traditional methods of beating the street. The cost of doing business with the "smartest buys in the room" is usually a 2% annual fee and a 20% commission on whatever profits they make for your account.

Hedge Funds are known to use leverage to make their "above average" returns. Two weeks ago in Traders Corner I made some observations about the overall market and what I thought was happening. One of my observations was that I thought there would be far fewer Hedge Funds by the time this bloodbath in the markets was over.The paragraph below is a description from Bloomberg of an Index tracking Fund. The Chart is also attached.

"The Index has normally 2 days lag. The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the Hedge Fund universe. It is comprised of eight strategies: convertible arbitrage, equity hedge equity market neutral, relative value arbitrage, event driven, distressed securities and macro. The strategies are asset weighted based on the distribution of assets in the hedge fund industry."

As a trader I would not touch anything associated with this chart on the long side.

Have a great week!

From the SCN Traders’ Corner

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