Hedge Funds

Quants get hit by 'Fed dilemma trade'

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The end of summer has been déjà vu for many quantitative hedge funds. After last summer's subprime meltdown decimated the returns of quant funds across the board, most rebounded during the past year. Once again, however, July and August proved less than pleasant for many quants, this time because of the unwinding of what has been dubbed the "Fed dilemma trade."

For much of the past year, many quant funds have relied on a few prominent macro themes that have served them well. Faced with the possibility of both inflation and recession, the Fed was reluctant to lower rates