Short Sellers Win

Chidem Kurdas

September was bad for most strategies but short-biased equity managers thrived. They’re by far the top performers year to date.

Barclay Hedge’s equity short-bias index is up 12.5% for September and up 19% for the year. The overall Barclay Hedge index is down 2.6% for the month and down more than 5% for the year.

The caveat is that the short-bias data are currently for a very small sample—only four funds. This is in part because not all managers have reported their September return; the numbers will change as the results trickle in. But the thing is, there are simply very few short sellers, period. If they were a biological species they’d be considered endangered and protected under environmental law.

In fact regulators discourage short selling. This is a kind of government discrimination. In a crisis regulators ban short selling of certain stocks, whereas in bubbles they never ban the long trades that blow more air into the bubble. They apply brakes on the downside but not on the upside.

On top of that, short sellers have a hard time in bull markets and the companies they short take action against them, in particular by complaining to regulators.

So short sellers are a tiny and unloved group. But when the market tanks they tend to do amazingly well.

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