Shorting no longer a sure bet for hedge funds

By Laurence Fletcher

LONDON (Reuters) - Short-selling, one of the few tactics that made money for hedge funds in 2008, has become a risky bet as prospects for equities have improved, while getting hold of stock to sell is harder as lenders shun weak funds.

Some hedge funds have already changed tactics and are simply buying cheap stocks, wary of getting burnt if a stock they are shorting announces unexpectedly good earnings and the share price spikes -- a real possibility in an improving economy.

High-profile hedge fund manager Philippe Jabre told Reuters he had no short positions because it was "too dangerous," although in future shorting could prove a better trade.

Crispin Odey, founding partner at Odey Asset Management, has also turned bullish on stocks. His European fund has a net long position in equities of 65 percent. "Equities now look exceptionally cheap against cash," he said.

Shorting -- betting on falling prices -- was particularly effective during the credit crisis for those, such as John Paulson and Lansdowne Partners, who shorted financials.

The strategy isn't so lucrative now.

James Clunie, investment director in Scottish Widows Investment Partnership's UK equities team, said: "It's a little bit harder to find good short ideas right now. Many stocks do look cheap."

Clunie, who is writing a book on shorting called Predatory Trading and Crowded Exits, said some hedge funds are finding it difficult to adjust to the stock market's change of direction.