Riding the volatility

Thu Sep 27, 2007

CDS positions saved financial portfolios in August, but there's little agreement on the road from here

By Julie Dalla Costa

Rising mortgage defaults, a credit crunch that scorched everything from jumbo mortgages to commercial paper, and uncertainty around the Federal Reserve Board's zeal to trim rates made for a chaotic August, at least for hedge fund managers focused on financials.

Much to their credit, many funds with a financial focus weathered the storm well. But with a huge overhang of leveraged buy-out debt, a subprime mortgage crisis that is still claiming new victims and fears of recession, there's little consensus on whether the market has bottomed out.

Financial hedge funds that did well in August were those that began the month short equity or credit, a view that could have been expressed by shorting mortgage providers or insurers or by buying credit protection through credit default swaps, whose value increased...

ISSN: 2151-1845 / CDC10004H

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