The most famous strategy for playing on the stock exchange, utilized by hedge budget and long taken into consideration a win-win, has stopped working, writes signal-means-profits.com. Investment organization Lansdowne Partners is forced to close its Hedge Fund because of loss on the background of the coronavirus pandemic.
Initially, hedge finances were conceived as a method of getting cash in an unstable (too changeable) market. Their essential method is to distribute investments between buying assets within the desire of growth and selling (opening quick positions) in the event of a fall.
This technique lets in you to compensate for frequent fluctuations in quotes: losses in some positions are compensated by way of profits in others. However, in a situation where there is too much deviation to one aspect, the strategy fails, due to the loss on one of the positions turns out to be unacceptably large.
In an ordinary situation, fund managers manipulate to shift from one asset to any other and for that reason prevent losses. In 2020, it was more difficult to do this because of the panic that engulfed many investors amid the coronavirus pandemic.
Since the beginning of the year, US market has experienced shocks. First, in March, shares of important corporations and essential indexes collapsed, causing 87 percent of hedge funds to suffer losses. Then the market commenced to recover, which was facilitated by two reasons: active support from the government and continuing low rates, which make investment in bonds unattractive.
In the overdue spring and early summer, US stock indexes confirmed strong growth, even despite the continued pandemic, the explosion of unemployment and mass protests in defense of black rights. Analysts expect that growth will continue in the future, which means that there will be a bias towards the profitability of long positions and the loss of short ones.
Both private and institutional investors are becoming increasingly disillusioned with hedge funds, seeing them not as a protection against market fluctuations, but as even riskier tools for earning money than usual. The example of Lansdowne Partners is preparing to follow the investment company Sloane Robinson, which announced the closure of two funds at once by the end of the year.
However, traders o not yet understand how to replace hedge funds with their approach, which was taken into consideration to be proven. "If short positions don't help during a crisis, what what can help at all?» Andrew Beer, founder of Namic Beta Investments, asks. He describes the current situation as an existential crisis of investment.
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