While most hedge funds have successfully ridden the stock market’s surge this year, a small but distinct group of holdouts have been hamstrung by their caution. Eton Park Capital Management, Clarium Capital Management and HighSide Capital Management are among those to suffer.
Eton Park’s defensiveness caused the firm to miss the bear market rally in March and lag the broader market through June 30, investors say, at which time the firm had gained only 1.79% for the year.
The firm then increased its long book in the second half, with August (up 1.26%) and September (up 3.99%) gains that put the fund up 6.08% for the first nine months.
Lee Hobson’s HighSide has paid an extreme price for prudence. The fund lost 8.57% through September 30, albeit an improvement on its midyear decline of 9.7%. Going into the second quarter, HighSide was short highly leveraged and undercapitalized stocks that, though inferior fundamentally to its long book, rose 33.8% during that period while its longs rose 17.4%. Trimming short exposure evidently helped the firm as the markets continued rising.
Clarium nearly bid adieu to stocks entirely judging by the firm’s October 9 investor update. The firm suffered losses earlier this year due to its equity shorts, founder Peter Thiel has said. Now the firm’s gross exposure to U.S. equity is 0.6% long and 0.2% short.
Hedge funds continue to cover their small-cap shorts, a particularly bloody position to have been in, according to Bank of America Merrill Lynch’s October Hedge Fund Monitor, which also notes that a number of hedge funds have come off the sidelines to buy equities.
Probably not Tudor Investment Corp. Tudor is one of the few bears that has chalked up decent gains, rising 16.01% through September, despite having expressed skepticism of the market’s buoyance in its August 3 letter. “The bottom line is that we are not inclined to aggressively chase the market here,” wrote Tudor’s Paul Tudor Jones. “Rather, we eye a better opportunity to be long equities into year-end on a potential autumnal pullback.”
Josh Friedlander
