This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Hedge Fund Redemptions and Volatility

Investors trying to divine the near-term future of energy stocks should consider a factor that doesn't show up in sector fundamentals: bad hedge fund returns.

The problem is redemptions, which occur when a fund's returns are weak enough that investors ask for their money back. After a grim October, it's a safe bet that redemption requests are rolling in at some shops, especially since many funds require up to 45 days' notice before paying money out. An investor hoping to collect before year's end has only a few days left.

The need to raise cash could add to the market's volatility, particularly in popular sectors.

"Most people were long energy and short retail," said says Rick Doucette, chief investment officer at George Weiss International, a Hartford, Ct.-based fund. "If you're long energy and you see a drop of 10% in that position, as a hedge fund, you need to book your profits for the year and so you sell."

While fundamental factors like lower oil prices clearly drive the space, it's possible that the unwinding of the energy/retail trade has contributed to the roughly 4% decline in the Amex Oil Index over the past five sessions, a period that has corresponded with a 3% firming in the S&P Retail Index.

"If you look at how energy has performed relative to all sectors, it's been by far the best of the year, so managers are likely to take some profits off the table," says Kevin Campbell, vice president of research at Van Hedge Fund Advisors International, a research-focused hedge fund advisory firm.

Most hedge funds have been hurt in October, with the bulk of the pain in strategies that focus on merger arbitrage and big corporate news events. "I don't know of any arb that wasn't down," says Nancy Havens, founder of Havens Advisors, a New York-based merger arbitrage hedge fund. She cites the failed Guidant (GDT), Cablevision (CVC) and School Specialty (SCHS) deals as the leading causes of performance (although she stresses that her fund isn't anticipating outflows).

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $123.25 0.00%
FB $83.30 0.00%
GOOG $548.34 0.00%
TSLA $185.00 0.00%
YHOO $45.10 0.00%

Markets

DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs