It’s that time of year again, as the holiday season will soon be under way and that means hedge funds and other money managers go on a shopping spree of their own as they hunt for bargains with which to stuff their clients’ stockings to help boost year-end returns. “What we are seeing is a flight to risk,” economist Stephanie Pomboy of New York-based MacMavens explained to Reuters. There’s only about a month worth of trading days left to 2006, she said, and with “the rush to generate double-digit returns begun, the appetite for risk-taking is not surprising.” Actually, investors appear to be ravenous as they gobble up in large quantities margin-market debt, small cap stocks and especially high-yield junk bonds – not a particularly healthful financial diet. “A lot of investors are chasing yield and a lot will regret what they’ve bought when all is said and done,” portfolio manager Bob MacIntosh at Boston-based Eaton Vance Management said in a Reuters interview. Macintosh said junk bonds especially are priced too low for both economic and geopolitical risks. Hedge funds have an especial urgency to make up for hedge fund deficiencies, notes Reuters, pointing to the 7.64% year-to-date returns of the Credit Suisse/Tremont Hedge Fund Index – which is about half the performance of the Dow Jones Industrial Average and about 3.5% percentage points behind mutual funds.
