Hedgies made zilch from short selling strategies in last 11 years

Hedge funds are known for taking punchy bets but according to new data they have made absolutely nothing from short selling over the last 10 years or so.

Despite the bulk of strategies keeping a pace with the rising market during August, an analysis of where hedge funds have gone wrong has offered a fascinating insight into their weak spots.

Over the last 11 years, the EDHEC-Risk Institute found that short selling had produced a 0% average annual return. It took the microscope to data since January 2001, but also analysed year-to-date figures, which painted a bleaker picture of their tactics.

As volatility hit, many investors will have found it difficult to judge the direction of stocks, and hedge funds were no different.  As a collective they lost 10.9% short selling year-to-date, and in August shed 3.24%, roughly a third of their yearly losses.

Distressed securities strategies were by far the most successful over the 11 years examined by EDHEC.  These yielded an annual average return of 10.1%, and the strategies and largely maintained this lead 12-months to date.

Emerging market strategies were next in line and delivered a typical yearly return of 9.7% since the start of 2001. 

Such strong performance is hardly surprising given the rise of the likes of Bric nations Brazil, China, India and Russia over this time.

When Jim O'Neill coined the phrase 'Brics' roughly a decade ago the Goldman Sachs economist was one of many figures at the bank who believed that by 2014 these countries would have eclipsed the world's six largest developed economies.

Although the investment bank later revised its prediction out by some 25 years, it seems that hedge funds were convinced by the story and positioned accurately to benefit from the rise of the non-western world.

More recently, EDHEC pointed out that hedge funds have shrewdly played other sector too.  'Commodities performed impressively for the second month in a row,' the institute said, looking at one-month data for August and pointing out these returned 6.17%.