The derivatives are starting to unravel.

U.S. Hedge Funds Lose in First Half, Mutual Funds Worse
http://moneynews.com/financenews/hedge_funds/2008/07/09/1113...
Wednesday, July 9, 2008 3:36 PM
BOSTON -- U.S. hedge funds, which often promise to make money in all markets, were in the red during the first half of the year but did not lose nearly as much as mutual funds, according to data released on Tuesday.
Hedge Fund Research said the average hedge fund is off 0.75 percent since January after slipping 0.68 percent in June.
For the roughly $2 trillion hedge fund industry the credit crisis and slower economic growth have led to sluggish returns across the board, according to data compiled by companies that track the industry.
As the year began, many prominent managers suffered their heaviest losses ever. And more funds have gone out of business during the first six months of 2008 than the year-ago period while fewer new funds have started up, the data show.
Still, hedge funds compare very favorably with U.S. stock mutual funds, which lost an average of 10.09 percent in the first six months of the year, according to Lipper Inc, a unit of Thomson Reuters.
Sector stock funds lost 6.07 percent and world stock funds fell 11.54 percent, the Lipper data show.
Some hedge fund analysts worried about how the second half of the year will shape up, as funds slipped back into the red in June after rising 2.11 percent in May and gaining 1.2 percent in April, according to Hedge Fund Research data.
Analysts blamed both volatile stock markets where many financial stocks cratered, plus redemption notices that forced many fund managers to sell holdings at a loss for clients who were withdrawing their investments.
Losses at funds specializing in convertible arbitrage strategies helped pull the overall index down in June, Hedge Fund Research data show. These types of funds fell 3.5 percent in June, bringing their first-half loss to 7.6 percent.
On the other hand, the industry's short-sellers, a small group of funds that specialize in betting on stock declines, rank as the year's biggest winners with gains of 8.6 percent in June and 12.2 percent since January, according to Hedge Fund Research.