CNNMoney.com- Some hedge funds with heavy exposure to complicated, often illiquid securities likely are in for a rough ride in the next few months if investors take out their money.
Many funds’ returns have suffered. Heavy redemptions can deepen losses. The size of any exodus won’t be clear until Sept. 30, the deadline for paying August redemptions.
Some shareholders probably will bail if their funds are hurt by hard-to-price securities. That can make those securities less liquid. Many are linked to the subprime mortgage market.
The average hedge fund was up 0.37% in July, according to Hedgefund.net, which tracks almost 3,500 funds. That left them up 7.74% for the year. That beat the S&P 500 index, which returned 3.64%.
But funds whose strategies focused on the finance sector — 37 funds — fell an average of 3.88%. That was the worst of all sectors HFN tracks. It left that sector down 5.21% for the year.
Meanwhile, hedge funds that invested in the mortgage sector soared 13.07% on average in July.
