japanese yen

One can easily name ‘great’ investing ideas such as, long Apple Inc. (NASDAQ:AAPL) and long gold as the most crowded trade among hedge funds (and many retail investors). Although Gene Munster may never shake down his price target for Apple Inc. (NASDAQ:AAPL), the charisma around the most loved tech stock has fazed out a little. However, the tech company still remains the core holding of the largest hedge funds with 262 funds owning it, and 53 of them having it in their top positions. According to BAML’s analysis of Q3 holdings, Apple was the most actively sold tech stock among hedge funds in the third quarter.

So when Apple does not remain hot anymore, where do the hedge fund crowd go? It seems that shorting the Japanese yen is the latest fling. The yen took another beating after Japan’s new prime minister, Shinzo Abe, won the mid December elections.  Abe’s economic policy is centered around weakening the yen further, increasing inflation, and further  ‘bold’ easing plans from Bank of Japan. Ever since the ex-PM called for snap elections in November, the currency has detracted more than 5 points in comparison with USD, and ‘experts’ expecte the Yen to weaken even further. Shinzo Abe threatens to change BoJ law if bank governor refuses to raise inflation target to 2 percent (up from the 1 percent) in the upcoming meeting, this has brought JPY under an even fiercer fire-storm of short selling.


Hedge funds’ love affair with shorting the Yen has picked up speed in the last couple of months, dethroning the previous favorite short currency, the Euro. BAML’s hedge fund monitor reports that the position amounts to $13.8 billion, a leap from a $5.8 billion notional position in early November. Additionally, CFTC (US Commodity Futures Trading Commission) data shows that there are almost 80,000 contracts betting that the Japanese currency will decline, the highest level of shorts in the last five years.

JPY crowded short

The hedge funds that have been shorting the yen includes, North Asset Management’s MaxQ fund, up 13 percent through October 2012, and gained from shorts in JPY. Others like, Woodbine Capital,  Omni Macro Fund gained from longs in USD versus shorts in JPY, in the months of October and November last year. Rubicon Fund Management that has otherwise been unsuccessful in the year, also gained from shorts in JPY. We are expecting more positive gains when hedge funds update their returns for December. Shorting the yen is going to be a key driver of profits in Q4 2012 for currency focused hedge funds, and hedge funds look appear to be increasing their short bets.

On the other hand, between the 50 largest hedge funds, FactSet Research state that exposure in Apple Inc. (NASDAQ:AAPL) was reduced by $1.2 billion in third quarter of 2012. David Einhorn cut his stake by 25 percent in the company, his largest long holding. Steve Mandel of Lone Pine Capital almost halved his holding, while James Simons of Renaissance Technologies reduced his position in Apple, his second largest holding in Q2, by more than 60 percent in Q3. Dan Loeb also appears to have trimmed his stake in Apple recently. Data from Whale Wisdom shows that Q3 saw an aggregate reduction in ownership of 0.4 percent across more than a 1000 13f filers.

While the trend for yen could continue on the downward road, unlimited easing (as demanded by Shinzo Abe) will be ceased at some point, plus easing policies from other central banks like, the the Fed and ECB could also reverse the trend.