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Why the Equity Short Bias Hedge Fund Underperformed in April

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Jun. 7 2016, Updated 12:55 p.m. ET

Equity short bias hedge fund

The Barclay Equity Short Bias Hedge Fund returned -0.83% in April 2016. However, on a year-to-date basis, the fund provided a return of 3.4% through April 30, 2016. The equity short bias strategy works best when the Market is in a downturn.

From January 2016 to mid-February 2016, the global markets (ACWI) (VTI) were in a downturn due to a slowdown in the Chinese (FXI) (YINN) (ASHR) manufacturing PMI (purchasing managers’ index) and a fall in commodity (DBC) and crude oil prices (USO) (BNO) (UWTI).

At the time, this equity short strategy worked out. The Barclay Equity Short Bias Hedge Fund returned 9.0% in the first three months of 2016.

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ETFs that provided returns when the Market fell

The ProShares UltraShort FTSE China 50 ETF (FXP) rose by 48%, the ProShares Short QQQ ETF (PSQ) rose by 15%, the ProShares Short MSCI EAFE ETF (EFZ) rose by 12%, and the ProShares Short Russell 2000 ETF (RWM) rose by 18% from January 1, 2016, to February 11, 2016.

As the Market was following a downward trend during the period, ETFs that had short equity remained fruitful.

In April 2016, the Market maintained its upward direction, so this strategy didn’t work out. The Barclay Equity Short Bias Hedge Fund provided a negative return in the month. Read How Has the Equity Short Bias Hedge Fund Strategy Worked in 2016? to know more.

In the next part, we’ll analyze the performances of the healthcare and biotechnology indexes in April 2016.

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