One of the few success stories in the market slump has been among funds using hedging strategies since they make up four of the five funds with double-digit gains this year. With the broad market down so sharply, as seen in the S&P 500′s 19.9% loss, it’s understandable why shorting has been a successful strategy this year.
The only double-digit gainer that didn’t hedge, Royce Special Equity (RYSEX), is the leading small-cap value offering this year. Small-cap value funds make up nine of the eighteen funds with positive returns this year. This strong showing for small-cap value funds is in keeping with the broader fund world this year, where small-cap value funds are holding up best among the nine fund style categories. With a 10.9% loss this year through July, small-cap value funds are losing, on average, less than half that of the worst performing fund category, small-cap growth, which is down 27.2%.
Small-cap value was the least successful segment during the 1990s bull market, so it has been less hurt by investors’ current concerns about high valuations. Also since, the small-cap value category generally didn’t include as many technology or Internet stocks during the 1990s bull market as other fund categories, it wasn’t as affected when those sectors imploded.