As The Hedge Fund Slaughter Continues, Here Is Who Is Unwinding And What Stocks To Watch
Last week we reported that in the aftermath of the vicious high-flying momo, high-beta mauling, hedge funds had their worst week since 2001 (excluding such "end of the world" days as Lehman and the 2011 debt ceiling fiasco). Specifically, we said that the crush was nowhere worse than in the "hedge fund hotel" basket of names most near and dear to the hearts of hedge funds, and respectively those most hated, one which Goldman defines as the long Very Important Positionsvs. short Very Important Shorts . This is how the chart showing the weekly hedge fund P&L of this most popular pair trade looked like.
We ruminated on the benefits of hedge funds which no longer "hedge" and try to reach for alpha, but are merely levered beta-pursuing vehicles: "when after five years of underperforming the market, investors continue to ask themselves just what are they paying hedges 2 and 20 for - obviously it is not to hedge risk, in a market in which the Fed has made it all too clear a market downturn is no longer a possibility. It must be for the "benefits" of the herd effect of everyone loading up on the same positions, and when one sells, everyone sells and leading to sharp losses for the bulk of the "smart money out there."...MUCH MORE
Well, as expected, the next week - the one that just passed - what was certain to be a reflexive, margin call-driven continuation of the selloff as levered positions continued unwinding, indeed happened.
Goldman's David Kostin reports:
Or, said much more simply, a furious unwind of levered positions for the second week in a row."The recent momentum reversal has focused on high growth stocks, many of which are constituents in our hedge fund basket"..."high expected sales growth and firms with high EV/sales multiples. Our 50-stock sector-neutral portfolio of firms with the highest expected sales growth surged 3.4% during the first 60 days of 2014 (250 bp above S&P 500), before retreating by 2.4% during March and trailing S&P 500 by 320 bp (Bloomberg:). Stocks on both lists were social media, internet, and biotechnology firms that had led the market during the prior six months. These high growth/high multiple stocks feature prominently on our list of “stocks that matter most” to hedge fund performance ( ). Having outperformed by 230 bp through February, our VIP basket dropped 2% in March while S&P 500 climbed 0.8%. Long positions trail by 98 bp YTD."
So furious that some of the marquee hedge fund names are already getting slammed for the year in what everyone said would be a guaranteed way to make a killing in 2014. From the WSJ:
Andor Capital Management LLC, once one of the world's biggest technology-focused hedge funds, plunged 18% last month. The $15 billion Discovery Capital Management LLC lost 9.3% in its flagship fund.... Both funds are in the red for 2014, according to people familiar with the firms....
