Daily Management Review

Hedge funds lose over $43B as US and European markets rally


Hedge funds lost over $43 billion in a few days due to their bets on the stock market's decline despite the expansion of the U.S. and European stock markets, the FT writes.

According to the Financial Times, which cites data from the research group S3 Partners, hedge funds lost $43.2 billion over the course of four days as a result of their bets on the decline in the European and American stock markets, which have recently seen significant increases. The data cover November 14–17, inclusive of short positions; profits from other stocks that the funds may have earned are not included.

The market has recently become more confident that the US Federal Reserve (Fed) has completed its cycle of rate hikes, the newspaper notes. The Fed made the decision to maintain the benchmark rate in the 5.25–5.5% range for a second consecutive time at the beginning of November. The U.S. Labor Department revealed on November 14 that October inflation had slowed to 3.2%, which was less than anticipated. This provided stocks with a boost.

The "painful" recovery in "low quality" stocks this month surprised those who had bet against companies with rising borrowing costs over the previous year, according to Emmanuel Cau, head of European equity market strategy at Barclays.

Based on S3 Partners' data, hedge funds lost the most because they underestimated the shares of technology, health care, and consumer services companies.

source: ft.com