Hedge Fund Momentum Trade Blows Up With Losses Worst Since 2009
- Market neutral quants see largest quarterly drop since 2012
- Bets against low-momentum backfire as most-shorted names rise
Pedestrians cast shadows as they walk on Wall Street near the New York Stock Exchange (NYSE) in New York, U.S., on Monday, March 7, 2016. U.S. stocks fluctuated near two-month highs as commodity shares surged with crude oil, offsetting declines among technology and consumer companies as investors assessed China's growth prospects.
Photographer: Michael Nagle/BloombergOne of the most popular hedge fund trades just hit a wall.
An investment approach that profits from the divergent paths of high- and low- momentum stocks over time, a strategy that had one of its biggest gains on record in 2015, seized up in the last three months, posting the worst quarter in six years. The plunge helped zap returns among a big category of quantitative hedge funds, the so-called market neutral group, whose year-to-date decline of 2.3 percent is the largest since 2012.