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...