The volatility of the stock market has really been played out each day of the past week. It means you really have to have faith in your investment advice and manager choice for clients.
Analysts have been mixed in their feelings about it, some saying the fall has repriced companies to more realistic levels. Others believe there is worse to come. And one stock in particular caught my eye. A large fall in the share price of hedge fund manager HFA Holdings last month forced it to hold off its takeover of US-based Lighthouse Partners. HFA's offer for the US hedge fund manager was worth about $750 million when it was announced on July 24.
HFA has since jumped as much as 18.2 per cent on saying that it benefited from having a net short position on the US sub-prime market. The firm issued a statement to the Australian Securities Exchange on August 17, saying it had anticipated the sub-prime crisis and its investors would be well rewarded by the recent turn of events. HFA said its exposure to the US sub-prime market through collateralised debt obligations and residential mortgage-backed securities was a net short position. After the worst day of the year on August 16, where many shares took their biggest one-day percentage drop in over seven years, HFA on Monday raised its profit guidance again for 2006/07.
It is HFA's third earnings upgrade since June, representing an increase of about 46 per cent on the company's prospectus forecast for 2007 - for a result of $13.9 million. Mortgage lender Rams Home Loans plummeted by more than 50 per cent after its sub-prime exposure was revealed. Macquarie fell 4 per cent and Babcock and Brown dropped 7.1 per cent.
