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Short For Three And A Half Years And Outperforming 98% Of Traders: This Hedge Fund Did It

One of the most flagrant "conventional wisdom" market lies is that if one is positioned net short, one is doomed to be crucified, margined out and left penniless, broke and homeless in this quote unquote market, which has been micromanaged by all central banks since 2009 as a confidence-boosting policy vehicle whose only purpose is to levitate higher while creating the wealth effect, ignoring reality, and failing at what used to be a market's primary function: discounting the future.

So what is the truth?

As it turns out one of the best performing hedge funds in the past 4 years is neither a net-long, nor a market neutral, but Horseman Capital, which as of July is -54.2 net short, and has been short since the start of 2012.

Here are the Horseman's stunning returns by years:

  • 2012: 16.27%
  • 2013: 19.15%
  • 2014: 12.63%
  • YTD: 7.63%

This means that Horseman's cumulative return in the past 3+ years has outperformed 98% of all hedge funds, and certainly most of the net-long biased ones.

How did he do it? By using a long bond position as a natural hedge. In fact, Horseman's net equity short is more than offset by a 60% net long in bonds.

This means that, big picture, while stocks have levitated higher, bonds have levitated higher-er.

So the next time you hear every single pundit on propaganda TV or in Wall Street research desperate to sell you stocks (which they currently gold), or to force you to sell your bond holdings (to them), think why for a few seconds.