Michael Covel

From “The Wild West of Hedge Funds Becomes Tamer” by Gregory Zuckerman and Ian McDonald, The Wall Street Journal, January 24, 2005:

“There are about 8,000 hedge funds, and they pursue many different strategies, from aggressive tactics such as betting on growth stocks and currencies, to capturing small gains from arbitrage plays in the convertible-bond market. Sometimes these moves are more conservative than those of most mutual funds. And lately, hedge funds have turned to “long only” strategies that eschew short selling, or betting that a security will decline.”
The Wall Street Journal

Hedge funds are changing because they are being influenced by today’s investors who have neither the patience nor the tolerance to trade for absolute returns. Adopting mutual fund strategies of “long only” may feel less risky for the fund’s investors but will this conservative (and conventional) approach play well in terms of profits? It’s one thing to blow up using a bad strategy like Long Term Capital Management in 1998, but is the answer to mimic the S&P? I think not and I think any successful trend follower would agree with me.