Hedge Fund Losses Blamed on Volatility

There’s more than a little schadenfreude doing the rounds at the news that one of Jim Simons’s funds is down 12% from its peak last May – especially since it’s meant to provide "lower, yet steadier, returns" than your average quant fund.

But there’s a lot more to Katherine Burton’s long Bloomberg article than that one factoid, and the bit which jumped out at me was this:

Much of the problem this year has come from extreme price movements in different markets. The S&P 500 has moved by 1 percent or more on about half of all trading days this year, according to New York-based Standard & Poor’s. The last time the percentage hovered at that level was in 1938.

Commodities prices have also gyrated. This year, crude oil has fallen below $90 a barrel twice and jumped to a high of $110 a barrel. It closed yesterday at almost $109 a barrel. The U.S. dollar has lost 4.13 percent this year against a trade-weighted basket of currencies tracked by the Federal Reserve.

I have to say I don’t get it. Aren’t hedge funds precisely the asset class which is meant to benefit from volatility?

On the other hand, if hedge funds are losing money, is that good news for the rest of us, who aren’t rushing in and out of markets trying and failing to pick tops and bottoms? Are the hedge funds’ losses in some respect our gains? I doubt it, somehow, but a blogger can dream.

This entry was posted in hedge funds. Bookmark the permalink.