Hedge fund bets behind stock moves

NEW YORK – If you’re baffled by Wall Street’s performance this past week, consider the increasing influence hedge funds have in manipulating the market.

Hedge fund managers have been making bets on how far down or up the market will move in a given day by making sophisticated “short” and “call” investments. But the market hasn’t always cooperated – going in the opposite direction from what hedge funds have expected and leaving them to scramble at the day’s end to cover positions by buying or selling stocks.

Most of the activity can be seen in exchange-traded funds, especially those that track the Standard & Poor’s 500 index. Hedge funds and mutual funds also rely on electronic trading systems that automatically execute trades based on algorithms.

Analysts believe this kind of a pattern is bad for the market – and should be discounted. Hedge funds now account for half the daily volume on the New York Stock Exchange, with average volume this week running about 2 billion shares.

“This is all noise, you have a bunch of lemmings that run left and right and up and down,” said Roland Manarin, a portfolio manager who runs Manarin Investment Counsel. “It is when an absolute panic is going on that investors should get a second mortgage and diversify among stock investments. You just can’t follow along with everyone else.”