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Globe and Mail - Hedge fund manager Eric Sprott heaps praise on his "defensive team" for helping him survive this bear market.
While some of his peers have cratered amid this year’s stock market crash, his short positions have kept him well ahead of his benchmark index.
For the first 11 months of this year, the returns of Sprott Bull/Bear RSP and Sprott Hedge LP I and II range from an 8.5-per-cent gain to a 4.5-per-cent loss compared with the S&P/TSX composite’s sharp 33-per-cent slide.
"The reason we started our first Canadian hedge fund in 2000 was because we foresaw this very, very difficult market," recalls Mr. Sprott, also chief executive officer of Toronto-based Sprott Inc.
Hamilton Spectator - North American stock markets chalked up huge rallies late in the afternoon yesterday, resulting in one of the biggest one-day gains ever for the Dow Jones industrial average and a big bounce in Toronto.
Toronto’s S&P/TSX composite index rose 614.29 points or 7.2 per cent to close at 9,151.63. That mended a good chunk of the 757-point hole dug on Monday, when growing worries about the length and depth of a global recession pushed down Canada’s main index by eight per cent.
In New York, the Dow gained 889.35 points yesterday to rise almost 11 per cent to 9,065.12 — the second-biggest percentage gain on record for the world’s most-watched stock-market indicator
Globe and Mail - Canadian hedge funds posted a brutal 11.2 per cent decline in September, losses that are likely to leave many investors questioning this expensive alternative asset strategy.
The latest installment of the Scotia Capital Canadian Hedge Fund Performance shows these funds outperformed the S&P/TSX composite index last month – it was down 14.7 per cent. But mounting losses on funds sold to investors as market neutral, or absolute return, are going to translate into redemptions.
“September was an extremely challenging month for Canadian hedge fund managers who were largely unable to successfully navigate erratic price movements in stocks and falling energy prices,” said Scotia Capital’s note on the sector’s performance.
“Panic selloffs in an environment driven by fear and uncertainty left major equity markets significantly down at the end of September,” said the investment bank. Obviously, the market swings have become even more violent in October.
Globe and Mail - Goodwood Inc., a value-oriented manager, briefed investors Thursday on a dismal September. There’s a lot of these letters going out from hedge fund managers. Goodwood’s funds were down 16 per cent last month, bringing the year-to-date loss to 32 per cent. Year-to-date, the S&P/TSX benchmark is down 13 per cent.
Goodwood executives Peter Puccetti and Cam MacDonald used their September letter to unitholders to explain the madness of markets, and plead for patience and perspective. They certainly deserve a hearing. But investors who bought into hedge funds on the basis of absolute returns - making money in good markets and bad - are going to struggle with these pleas.
“We have seen many well-known investment management operations badly harmed as a result of their leverage exacerbating the effects of the ongoing credit crunch and deleveraging we are currently living through,” said Goodwood’s team.
Globe and Mail - Black clouds have been building over the hedge fund industry for much of the year, and a storm could break in coming weeks as investors receive their second set of lousy monthly results from funds that are meant to do well in good markets and bad.
A series of challenges, some unrelated to the hedge funds’ investment strategies, have combined to create lower returns and investor redemptions.
Industry experts expect some funds will be forced to close down as clients walk away.
The single biggest problem is performance. The most recent update of Scotia Capital Inc.’s hedge fund index shows the average fund was down 8.6 per cent in July, compared to a 1.74-per-cent decline in the S&P/TSX equity benchmark. Since its inception in 2005, the Scotia Capital hedge fund index averaged a 13.9-per-cent annual gain.