WSJ: Hedge Funds Cut Back on Investment Risk

Friday, 22 Aug 2014 01:02 PM

By Dan Weil

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Many financial commentators say that investors have become overly complacent with steady gains in stocks and other risk markets.

Some hedge funds apparently are taking the warning to heart, curbing their riskier positions in fear they are overvalued, The Wall Street Journal reports.

"You definitely are seeing managers reduce risk levels," Robert Duggan, managing director at Skybridge Capital, which manages funds of hedge funds, told the Journal.

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

"It has been in the last four to six weeks that you've seen a bit of a sentiment shift. 'Cautious' or 'more defensive' are things you hear when you speak with managers."

Hedge funds are buying 10-year Treasurys as a haven investment, buying put options on stock markets and buying credit-default securities on Italy, Spain and Portugal or those countries' banks to hedge against more turmoil there, investors and money managers tell the Journal.

Skybridge cut its allocations to funds with big bets on rising asset prices, Duggan said. It also has trimmed its stake in some stock hedge funds.

In the first seven months of the year, the Preqin Hedge Fund All Strategies index increased 3.5 percent, compared to 4.5 percent for the S&P 500.

A Goldman Sachs report obtained by Barron's posits that equity hedge funds are suffering from their positions in the consumer discretionary sector.

"While it currently accounts for roughly 20 percent of both long and net assets, consumer discretionary has returned just 1 percent year-to-date, worst among S&P 500 sectors," say Goldman analysts led by Ben Snider.

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

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