Hedge Funds Suffer Volatility Shock in August

Hedge funds focusing on trend-following strategies faced significant losses in August due to high market volatility. Their positions in Japanese bonds, U.S. equities, and other assets underperformed. The sudden equity price drops, triggered by massive unwinding of carry trades, led to substantial performance declines for several renowned funds.

Trend-following hedge funds experienced notable setbacks in August as their bets on the New Zealand dollar and Japanese stocks and bonds faltered amid global market turbulence, according to data from Societe Generale reviewed by Reuters on Tuesday.

Despite holding long positions in Japanese government debt, U.S. equities, and currencies from Australia and New Zealand, some asset classes favored by these algorithm-driven funds proved to be unprofitable this year, SocGen's data revealed.

The month's worst losses for hedge funds came from 10-year Japanese government bonds, the Nikkei 225, the New Zealand dollar, and German and Italian stock markets, the SocGen report read. In contrast, the Mexican peso, British pound, euro, blended gasoline, and U.S. 2-year Treasuries, though overall losing trades for the year, yielded profits in August.

(With inputs from agencies.)