Hedge funds that focus on short selling have had varied results in the past few years. However, as stock prices have fallen in recent weeks, short-sellers have been the best-performing hedge fund managers this year, The New York Times reports.
This is quite a relief for short-sellers who lost money in the bull market.
"We have gotten back to a more even playing field, where if companies mess up, they get their comeuppance," said David M. Knott, head of hedge fund firm Knott Partners, which allocates to bearish bets.
In October, short-selling hedge funds rose 3.4%, bringing their year-to-date return to 13.5%, according to a Credit Suisse First Boston/Tremont Investable index. In comparison to the 1% return for hedge funds last month and 2% through October, this growth is impressive.
Roxanne M. Martino, of a hedge fund manager at Harris Alternatives noted, "Whenever stocks trade based on fundamentals, short sellers are going to do better."
Of the $1 trillion in total hedge fund assets, $3.4 billion account for short selling, according Hedge Fund Research.
The negative aspect at hand is that it has become quite expensive for short sellers to make their bets because with more hedge funds getting into this game, brokers have raised their fees.