Hedge funds pursue technological gains and do not protect the downside



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  • Hedge funds are neglecting to protect against
    disadvantage in stocks, with a coverage indicator sitting close
    to the lowest in five years.
  • These funds are also seeing an almost record concentration
    in a small group of high-performance technological actions, showing a lack
    of diversification.
  • The five main holdings of shares of hedge funds
    at this moment they are
    FacebookAmazon, AlibabaAlphabet and Microsoft, according to
    Goldman Sachs.
  • At the same time, funds in general are going worse than
    the S & P 500.

Hedge funds are
it is supposed to offer a practical investment skill level that
You can not find it anywhere else. That is, theoretically, why
charge higher fees for their services than traditional money
managers

But recent data from Goldman Sachs suggest
that hedge funds are failing to differentiate, and
also neglecting its homonymous feature: coverage.

Short interest: a measure of the bets on the fall of an action, and
often used as a proxy of coverage: it represents approximately 2% of the market capitalization of S & P 500.
That is close to the lowest level in five years, according to the data
compiled by Goldman.


 Screenshot 2017 11 22 at 12.36.06 PM
Short
interest is close to the lowest in five years, suggesting that
big investors like hedge funds are not protecting against
declines

Goldman
Sachs


To continue driving home, the brazen confidence shown in
hedge funds, Goldman finds that they added net leverage
in the fourth quarter.

Funds now have a net long exposure of 51%, above historical
average and the largest amount since 2015, according to the firm's data.

It's the red-hot performance of technology stocks that have them
particularly excited And while the hedge funds have won money
By hooking your car to the sector, you are not doing much more
encourage customers to continue saving high rates.

The five main holdings of shares of hedge funds at this time are Facebook, Amazon, Alibaba, Alphabet and Microsoft, according to
Goldman studies 804 funds with $ 2.1 trillion in management.
These actions lead the so-called "VIP list" of the company, which
has outperformed the S & P 500 benchmark in almost eight
percentage points in 2017.

Unfortunately, however, the average / short fund of stock coverage
has posted a return of only 10% this year, behind the 16% gain
for the S & P 500. That suggests that these funds are
struggling to choose winners outside of technology.

Could explain why they have become so dependent on the sector, and
they go against another key principle of hedge fund investment:
diversification. The average hedge fund carries 68% of its length
portfolio in its top 10 positions, which is just below a record
reached in early 2016. In addition, the largest fund positions
saw a turnover of only 13% last quarter.

With all this considered, the question must be asked: Why?
Should I pay a hedge fund a strong rate to follow the market?
returns and non-diversified holdings?

Some high-profile hedge fund managers do not know what to do

These struggles are not lost in some of the most prominent
members of the hedge fund community.

Tourbillon Capital, which handles $ 3.4 billion and is managed by
Jason Karp, published an introspective investor
letter
in August that describes many of the struggles they face
the hedge funders today. A large part of his argument focused on
the meteoric rise of pbadive investment, which says it does
Active management is much more difficult. Your points echo a common
criticism of pbadive trade – which homogenizes the market and
causes the type of overcrowding that makes it difficult to beat
points of reference

Karp has also protested against what he sees as "foamy speculation"
which leads to the large influx of capital in positions such as
going long technology. And it still does not seem like I thought about it
outside. The Global Master fund of your company has fallen by 10.6% in 2017,
according to a recent note seen by Business Insider.

Meanwhile, the founder of Greenlight Capital, David Einhorn, has adopted a
opposite view in many of the most popular technological actions, with
Limited success so far. He sees Amazon, Tesla and Netflix in
particular as stretched, calling them "bubble shorts", and has
openly asked if the market has started to use an alternative "
paradigm
"to calculate the value of equity.

Einhorn funds have earned only 3.3% on an annual basis,
but it actually outperformed the S & P 500 by almost three percent
points in the third quarter, suggesting that maybe not all hopes
It is gone.

What can hedge funds do?

  

  

Of course, it is always possible for technological actions to experience
a kind of settling of accounts: a type of market event that trims
valuations in the sector and sends traders to the fight. Their
something that the Bank of America Merrill Lynch has warned against
months
citing an overwhelming feeling and euphoria of the trader.

If that happened, it would give hedge fund managers a new
opportunity to demonstrate your good faith with the investment flock
dispersed.

The question is: how many of them can stand for so long?

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