Thursday, October 02, 2008

Hedge fund equity sell-off

There seems to be a significant sell-off underway in mid-cap and small-cap stocks owned and nurtured by hedge funds. These are for the most part industrial, energy, and infrastructure play stocks, most with decent balance sheets and with no finance components. Some that are followed here are down 35% or more this week. The hedge funds basis in these types of stocks was almost always well below the price of these stocks at the beginning of the week. They may be approaching break even on most by now.

This is a dramatic unwinding, suggesting that we're not done yet with this market decline. Whether this sell-off is based on a point of view on the equity markets or just on a need to liquidate for redemptions is an interesting question, but perhaps not a meaningful one.

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