The market continues to vacillate significantly approaching the lows we saw in August as we head into this holiday weekend. For instance, our portfolio has been up as much as one and half percent today and down as much as half a percent. There is much to be wary of with the persistent credit problems, continued weakness in housing and oil pushing the much ballyhooed $100 level. Fears of recession have also been inching higher with the market sell-off and Fed’s recent implication that it is done easing in the near-term.
Investors have been creating turbulence by shifting gears and getting more defensive as evidenced by the staples and healthcare sectors performing better in recent weeks. Financials and the consumer discretionary names have been pummeled in this correction primarily for the reasons mentioned above. We continue to steer clear of the majority of financial names but have become intrigued by some of the opportunities now present in the discretionary space.
Adding to the volatility in our opinion is the liquidations we are seeing and will likely continue to see from troubled hedge funds. Hedge fund investors can only withdraw assets at scheduled periods usually at the end of every quarter. Typically, they must inform the hedge fund of their desire to withdrawal funds forty-five days before the end of the quarter or right around now. This has always been the case but we believe the significant credit woes this year have created fear and led to an increased level of redemptions, forcing those select hedge fund managers to be net sellers regardless of the market’s price or direction. The late day market volatility we’ve witnessed recently may be caused by quant or program trading – which is the practice of many hedge funds.
We continue to believe organic growth companies will be the beneficiary of net inflows going forward and perhaps redemptions from hedge funds are another potential source.