Amid a 10 percent Standard & Poor’s rally this year, some of  Third Point’s short holdings have held it back notes Kate Kelly of CNBC, as even the most beaten-down companies have staged remarkable comebacks.

Third Point

The $12 billion hedge fund Third Point has been on a tear this year, with trades like a long Nikkei position and shares of  Yahoo! Inc. (NASDAQ:YHOO) contributing to overall returns of 15 percent in its offshore fund through May. One area that has been working less well: a specialized short book that relies on heavy research to take bearish positions on stocks.

Third Point Daniel Loeb Feels Small Cap Strategy Doesn’t Apply Any More

Against that backdrop, Jim Carruthers, the Third Point partner who handled the company’s research-driven small-stock short positions from San Francisco, is retiring from the company this summer, according to a recent investor letter. Carruthers, who joined Third Point in 2005, worked with  analyst Scott Matagrano as a two-man team. Despite having “generated alpha for us throughout the years with his consistently original and outstanding research,” Third Point chief Daniel Loeb wrote on June 11 that Carruthers “and I have agreed that his strategy of focusing on smaller-cap companies would be more effective outside of Third Point, given our asset size.”

Are ‘Short Specialists’ Worth the Hype?

“The world is bipolar when it comes to short sellers,” said Jim Chanos, founder of Kynikos Associates. “We’re either evil geniuses or village idiots. And in this environment, you can guess which one investors think we are.” Chanos, who maintains a blend of long and short positions at any given time, added that his headcount has been essentially flat in recent years.

Other hedge-fund managers agreed that in the current market environment, the compensation and trading costs associated with employing dedicated short sellers can be tough to swallow. Indeed, some of the short community’s favorite names, including Tesla Motors Inc (NASDAQ:TSLA) and Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), have staged triple-digit comebacks in the past year, underscoring the idea that short specialists may not deserve their hype.