Hedge Funds Lose Money in July

Mon Aug 9, 2004

BOSTON (Reuters) - Hedge funds lost money in July but outperformed the broader stock market where higher oil prices, lower earnings and fears about terrorism weighed on prices, data released on Monday shows.

Last month hedge funds, the hugely popular investment pools that promise to make money in all markets by using trading techniques that are generally off limits at mutual funds, lost 1.26 percent, according to the Hennessee Group.

That comes after they barely broke even with a return of 0.51 percent in June, the New York-based consultants who specialize in helping investors pick hedge funds said.

And due to July's losses, year-to-date returns aren't much better with the average fund returning only 0.97 percent,

"Stock picking has not been rewarded except in one sector, energy," Charles Gradante, managing principal of the Hennessee Group, said in a statement.

Hedge funds were hurt by the same things that weighed on the overall stock market, analysts said noting that technology hedge funds fared worse than others, losing almost 5 percent in the month.

Still hedge funds posted slightly better results than the broader stock market where the Dow Jones Industrial Average dropped 2.83 percent and the NASDAQ Composite Index fell 7.83 percent last month, the Hennessee Group said.

Falling stock prices did help one group of funds so-called short sellers who specialize in betting against the future of a company by borrowing stocks in the hopes of repaying the loan after the stock price has come off.

In July, these types of funds returned 10.17 percent after having suffered through several months of losses when the stock market recovered.

Even as hedge fund returns are meager, demand for the assets class remains strong. Together, the world's hedge funds now manage roughly $850 billion and while that is still dwarfed by the $7.6 trillion managed by mutual funds, hedge fund assets have ballooned in recent years, rising from about $150 billion a decade ago.

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