Just after the Dow Jones Industrial Average plunged over 1,000 points on Monday morning, New York-based hedge fund manager Sahm Adrangi sent around his weekly note showing his fund lost 2 percent so far in August. His conclusion regarding the market turbulence: it's a buying opportunity.
Adrangi, whose $350 million Kerrisdale Capital is still up 10 percent so far this year, stands with several other well-known hedge fund managers in saying they're staying the course in US equities markets, including Leon Cooperman's Omega Advisors and Larry Robbins' Glenview Capital. Omega has lost 11 percent this month and Glenview is down 5.5 percent.
Still, "we are not getting a signal from the corporate sector or our analysts that there has been any deterioration in outlook," said Steven Einhorn, a partner at Omega Advisors, who said his firm believes stocks will rebound. While that view may not be shared by investors whose fortunes depend on such things as the price of oil or the health of the Chinese economy, most hedge fund managers contacted by Reuters remain upbeat about prospects for US stocks even after the Dow tumbled 3.6 percent and the Standard & Poor's 500 index
dropped 3.9 percent in a single day. For the year, the Dow is down almost 11 percent and the S&P 500 has lost 8 percent. Helping accelerate the recent slide, many hedge funds' in-house risk managers have been ordering traders to sell to curb losses during the turbulence. And analysts at Bank of America estimate that hedge funds specializing in stock investments have recently cut their net long exposure to 35 percent from 39 percent.
For some, the selling frenzy indicates how at least part of the investing public is inclined to panic, said David Tawil, who runs Maglan Capital, a hedge fund with about $75 million in assets under management. "This is like a runaway train and it speaks volumes to the temperament of today's market participants," Tawil said. Meanwhile, Jeffrey Gundlach, co-founder of DoubleLine Capital, one of the most successful fixed-income fund companies, warned that the sell-off may not be over. "The market is wounded and it takes time for people to get around to feeling good again," Gundlach said in a telephone interview with Reuters. "You don't correct all of this in three days."
Hedge funds' month end performance numbers are expected in about a week and so far, investors in these funds have shown little taste for racing for the exits. At the same time, managers are not going out of their way to soothe frayed nerves with special calls or intra-month reports. Unlike hedge funds, which lock up their investors' capital for months at a time, mutual funds have to redeem their investments immediately if their investors, usually people saving for retirement, want out.
Mutual fund Longleaf Partners, run by Mason Hawkins, whose holdings include Chesapeake Energy and Wynn Resorts, is down 16.22 percent so far this year. While it's not known whether Longleaf has suffered outflows this year, that sort of performance may have accelerated investor exits from US stock funds in August, after clients had already pulled $79 billion out in the first seven months of 2015, marking the fastest annual outflows since 1993.
Hedge funds meanwhile took in $64.3 billion in new cash in all types of strategies in the first seven months of the year. Some of that cash has flowed into so-called global macro funds that bet big on currencies and recently increased their bets on 10-year US Treasuries, seen as a haven in times of market stress. Global macro funds rose 0.17 percent for the year through the end of last week while the average stock hedge fund was down 0.16 percent, according to data from Hedge Fund Research.
The Balter Discretionary Global Macro, subadvised by Willowbrook Associates' Phil Yang, gained 1.09 percent in August, partly on a bet that oil prices would keep falling. Macro funds returned 5.5 percent in the first half of the year, prompting investors to add $8.5 billion in new money alone in July, data from eVestment show.
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