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Hedge Fund Woes Can't Diminish Banner Year for Long-Short Trades

Investors are finally warming up to an equity strategy that’s been lagging for the last six years.

Long-short hedge funds, which place bullish and bearish wagers on individual stocks, are on track to top the Standard & Poor’s 500 Index for the first time since the 2008 financial crisis, according to an index by Credit Suisse Group AG.

While the S&P 500 has struggled to hang onto its gains all year, long-short fund managers were able to differentiate by wagering on winning industry groups within technology, according to Mark Connors, Credit Suisse’s global head of risk advisory. This year’s long-short returns are poised to top every other strategy tracked by the firm.

“Macro factors still weigh on markets, but instead of everything lifting as
in 2013 and 2014, you’ve had some segmentation by sectors this year,” said New York-based Connors. “Equity long-short funds picked up on that.”

It’s been a rough year for hedge funds overall, with Och-Ziff Capital Management Group LLC and Mason Capital Management among those seeing redemptions. One strategy seeing returns come through is equity long short: KKR & Co. and Goldman Sachs Group Inc. bought stakes in funds focusing on those bets...