More Hedge Fund Managers Join the Bears; Go Hunting for Bulls to Kill
Hedge funds search out absolute returns. Because of this, more hedge fund managers are joining the bear camp and are hunting bulls for the kill. To this end, billionaire hedge fund founder George Soros recently returned to trading. According to industry insiders, his return signals the opportunity to profit from looming economic troubles.
More Hedge Fund Managers Join the Bear Camp and Go Hunting Bulls to Kill
Investopedia notes that when gas prices fall, people drive more than they do when gas is more expensive. On Black Friday, retailers sell their wares at major discounts inspiring their customers to camp out in the cold for amazing deals. Basically, when prices drop, the amount of sold quantities rise. The situation is the same for investments. A dropping Dow causes hedge fund managers to react in the same way as Black Friday shoppers and drivers.
Changing Tactics Based on Market Conditions
The recent market shift is encouraging hedge fund managers to change tactics. Reports show that hedge fund managers are purchasing downgraded assets as soon as they become available. In fact, hedge funds are procuring equities by the billion. During an earlier brief and heavily promoted bear market, the investment banking sector of Bank of America, Merrill Lynch, was on the purchasing side of an unbalanced number of equity transactions. At the first of the year, the organization entered a four-week buying streak.
George Soros made a similar move when he led a series of major, bearish investments. The Soros Fund Management, which oversees $30 million for the hedge fund founder and his family, added gold along with shares of gold miners to the billionaire’s portfolio. Unlike many other investors, Soros is closely involved with the management of his funds. The Wall Street Journal reported that Soros has concerns about the Chinese market. He said, “China is facing internal conflict within its political leadership, and over the coming year, this will complicate its ability to deal with financial issues.” Because of this, Soros is changing his trading tactics.
History Shows Hedge Funds Outperform Other Investments During a Bear Market
Bloomberg published an article about hedge funds and how well they perform. In the article, the news company mentioned that Warren Buffett often advises investors to avoid high-fee money managers. While speaking to a group of them, he said, “Fees eat up capital like crazy.” However, Bloomberg confirmed that hedge funds might outperform other kinds of investments during a bear market. The news organization reported that from October 2007 to March 2009, hedge funds overtook other investments even with the fees. This timeframe was during the last bear market.
Hedge Fund Managers Go Hunting for Bulls
Hedge fund managers who have no interest in or patience for small to mid-cap companies are buying stock. In particular, they are focusing on blue chip stock. As a rule, large companies face less speculation than organizations with lower capital. Hedge fund managers are sending the message to investors that the market is unusually low, so they are taking advantage of it. However, these market players know that prices must reach some degree of equilibrium. The key variable in this situation is the duration.
Hedge fund managers who are playing aggressively in 2016 know that any moves that they make in the market will result in price increases. For instance, a few months ago, one hedge fund decided to take a large position in Macy’s. This retail organization turns a regular profit every quarter. However, Macy’s trades are usually a mere 10 times earnings. After the hedge fund got involved, the company’s stock prices temporarily spiked.
Considering the Position of Those Who Wait
If predictions were always accurate, investors wouldn’t need hedge fund managers. While a number of them are aggressively pursuing bulls, a well-respected contingent of managers are waiting for the market to become stronger or subside. Despite the disagreements between these two types of investors, both sides agree that cash remains king. The hedge funds that are buying equities are using their massive reserves of cash to do so. Those who are waiting on the sidelines are watching their cash grow.
Are Hedge Funds the Way to Go?
Hedge fund managers who have joined the bear camp and are hunting for bulls may be onto something big for their clients. After a solid showing during the last bear market, hedge funds may be the way to go when the market heads into bear territory. To learn more about the bear and bull markets, visit the PersonalMoneyStore.com.