US Funds Finding Ways to Cash in on Europe’s Crisis
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As European leaders scramble to find remedies for a debt crisis that is threatening to spiral out of control, hedge fund managers in the United States have been finding ways and means to profit from Europe’s troubles. According to fund managers interviewed by Reuters, “there are a multitude of strategies to play Europe’s troubles, and many different participants.”
As European leaders scramble to find remedies for a debt crisis that is threatening to spiral out of control, hedge fund managers in the United States have been finding ways and means to profit from Europe’s troubles. According to fund managers interviewed by Reuters, “there are a multitude of strategies to play Europe’s troubles, and many different participants.”
Since the start of the eurozone crisis in 2009, money managers have been profiting from European woes by trading currencies, wagering on the direction of bank stocks, or using derivatives like credit default swaps to bet on the odds of banking and institution failures.
While the stakes are high, hedge fund managers interviewed by Reuters say that the erratic nature of the eurozone crisis requires constant vigilance, making it hard to score a single big-winning trade. Most funds have been in and out of trades, or forced to adjust positions depending on the swings in political sentiments.
Some managers are even going both short and long on different European sovereign debt, depending on their views of the financial stability of different countries.
According to the Reuters report, one way to profit from any greater swings in markets would be to play the spread between European and U.S. volatility indices. The sentiment is that European indices should rise faster than the U.S. one.
Other strategies include betting on the possibility that other countries will exit the eurozone.
Explaining how this strategy works, Reuters wrote:
[quote] One such trade involves taking a long position in Italian government debt denominated in U.S. dollars, and a corresponding short position in the debt denominated in euros, one hedge fund investor familiar with the strategy said. The belief is that if Italy is forced out of the euro – or the threat of that possibility grows – the U.S. dollar denominated portion will outperform. [/quote]
Related News: Goldman Gorges On Italian Debt
Such practices are, however, not unheard of.
Last year, the Wall Street Journal reported that Goldman Sachs was advising its institutional clients how to profit from a eurozone collapse.
In the private report “State of the Markets – Long and Short Risk Stategies”, Goldman strategist Alan Brazil made three major calls on the state of global markets, as well as revealing in detail the borrowing of 77 European financial institutions, identifying some that are highly leveraged.
Read the full story: The Secret Goldman Sachs Report: Eurozone Collapse and How to Profit from It
Related Story: Goldman Sachs Wants To Profit From US Real Estate Rebound
