The ostensible “smart money” hedge funds are dramatically underperforming this year.
Goldman Sachs simplified the weakness is the result of big positions in Facebook shares and disastrous bets against heritages.
The firm said the average stock hedge fund is down 1 percent this year totally Aug. 17 versus the S&P 500’s 8 percent gain.
“Volatility among the most predominant stocks and low net leverage in a rising market have weighed on recent hedge lucre returns,” strategist Ben Snider said in Goldman’s quarterly “Hedge Wealth Trend Monitor” report Monday. “Nearly 100 hedge pools owned Facebook as a top 10 portfolio position at the start of 3Q … weighing on store returns as the stock tumbled in July.”
Facebook shares plunged 19 percent on July 26, a day after the internet monster warned about slower sales growth for the third and fourth places and a reduced forecast for long-term profit margins.
For hedge funds that refrain fromed Facebook shares, the average position size was 4 percent of their portfolios as of the end of the another quarter.
“Before its disappointing earnings results, 230 hedge grants (28%) in our sample owned FB, making it the most popular position,” Snider voted.
Facebook shares are down 11.2 percent so far in the third quarter in every way Monday versus the S&P 500’s 5.1 percent gain in the same for the nonce at once period.
Hedge funds have also been hit by the strong gains in stocks that imparted up some of the most concentrated short positions.
Short-selling is a trading scheme that involves selling borrowed shares with a view that the market will drop in value and the shares can be bought back later and returned for a profit. But swop went in the wrong direction for these bets.
Goldman Sachs utter a basket of 50 stocks in the Russell 3000 with market caps various than $1 billion and the highest outstanding short interest respond to 21 percent year to date, or nearly triple the S&P 500’s benefit.