Hedge funds, value stocks back in game

Volatile stock market opens up opportunities.

Inflation scares. Trade wars. Rising interest rates.

Suddenly, it is a scary time to be an investor — but a great time to be a trader.

After nearly a decade of calmly climbing stock markets, a period during which algorithms and index-tracking funds reigned supreme, newly volatile markets and the return of a little bit of fear have given new life to an old Wall Street creature: the swaggering risk-taker.

Hedge funds, after years of poor performance and rich fees that led to questions about the viability of the industry’s business model, are finally beginning to perform better. Having steered clear of increasingly pricey stocks, so-called value investors, who make long-term wagers on undervalued companies, are getting back into the game. And as the volumes of buying and selling spike, traders at Wall Street banks who were relegated to the sidelines in recent years are hoping for a return to the days of easy profits.

After a year in which a 1 percent move, up or down, in the Standard & Poor’s 500 stock index was a rarity, 2018 has featured stomach-churning market swings on a regular basis. Monday was a good example. Stocks plunged initially on news that Gary Cohn, President Donald Trump’s top economic adviser, had resigned, only to recover those losses by the end of the day.

“We are seeing extreme volatility here — it is the Goldman Sachs business model,” said Adam Sender, the founder of Sender Co. & Partners, a hedge fund the specializes in making quick bets in up-and-down markets. “The opportunities are tremendous.”

Sender was so frustrated by the long period of markets grinding higher, absent any sharp moves, that he simply stopped trading in November and took a threeweek tour of Sweden, Iceland and Japan.

“It made me sick looking at my screen all day,” he said. “I felt I was wasting time.”

No longer. On a day last week when stocks plunged, Sender was in and out of the market all day — buying a stock here, betting it would fall there.