Market Volatility Batters Hedge Funds' Index Rebalancing Trades
Millennium Management has lost about $900 million so far this year from two teams focused on index rebalancing, a strategy recently upended by global stock market volatility, according to people familiar with the matter. The losses are attributed to bouts of market unrest combined with the crowded nature of the trades, which can trigger significant losses even if portfolio managers bet on the right stocks. Index rebalancing involves betting on which companies enter or exit various stock indexes, and its upside can be significant.
- The decline of index-rebalancing strategies highlights the need for hedge funds to diversify their portfolios and adapt to changing market conditions, lest they fall victim to similar volatility-driven losses.
- Will the loss of experienced portfolio managers like Jeremy Ma lead to a wave of consolidation in the industry, further reducing competition among remaining firms?