Readings: Short selling, Hedge fund performance, FMP returns
- MacroScan: More Space for Speculation
. . . both in terms of the price earnings ratio and the nature of the surge in markets the current situation is either similar to or even more dodgy than that which prevailed in early 2001. Of course, it could be argued that the FIIs responsible for the recent surge are not pigmies of the kind that Ketan Parekh was, reliant on illegally acquired capital for their investments.
But because these entities are cash rich and include highly leveraged, speculation-prone institutions like hedge funds and private equity firms looking for abnormal returns, some among them might choose to use the short selling option when markets are high in the hope that the market can be maneuvered downwards to ensure large profits.
- Chicago Tribune: Hedge fund returns in ‘07 ‘disparate’
The average hedge fund gained 10.4% last year, including 0.7% in December, according to data released Tuesday by Chicago-based Hedge Fund Research Inc.
Seven of the 10 largest firms fell short of the annual average, said people with knowledge of their returns. Six were quantitative managers, who use mathematical models for some or all of their trades.
The highest returns were reported by managers who, unlike quants, use fundamental research to make investment decisions.
. . . investors would do well to understand that, by virtue of being market-linked, there is a possibility of debt investments going negative intermittently. There could be phases when investors could find the net asset value (NAV) of their FMP investments dipping over a day or a week.
Debt instruments, and by extension debt funds and FMPs, are prone to a downturn, particularly when there is pessimistic news on the economic front (i.e. inflation, interest rates among other factors).
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