A recent report from Credit Suisse finds that long/short ratio in MSCI World Index declined across all regions. At the same time, the U.S saw its biggest fall in long-bias where net exposure fell to 17.6%.
The way markets moved at the beginning of this year was in stark contrast with how things went in January 2013. It seems a lot of investors are now betting that a correction is in order and are thus piling up on their bearish bets. We are taking this time to look at some stocks that hedge funds have patiently bet against and which are now turning out to be profitable in light of their falling stock performance this year.
Hedge funds score from Blinkx plc’s shock fall
Back in December 2013, we at ValueWalk noted the rising short interest in Blinkx Plc (LON:BLNX) (OTCMKTS:BLNKF), which provides advertising and video services on the web. At the end of January 2014, a Harvard professor, Ben Edelman, raised allegations against the way the company generates revenues through ads. The blogpost that Edelman was paid to write sent the stock tumbling and rewarded its shortsellers. Fund managers who have shorted Blinkx include, Valiant Capital, Luxor Capital and Carson Block’s Muddy Waters, although Block jumped in after Edelman’s allegations were published. Short interest in Blinkx is now at 8% of outstanding shares, after peaking at nearly 10%.
Citi in their latest research note said that the issues the professor has pointed out exists at every tech company that generates revenue through ads. The analysts concluded that owning Blinkx’ shares over a 3-6 month period would be rewarding and that the stock is attractively priced. Goldman Sachs also published similar views, saying that click fraud is a very common allegation and unless proven, it is difficult to assess the company differently. Both Citi and Goldman Sachs remain bullish on the tech company.
Interestingly, Jefferies downgraded Blinkx Plc (LON:BLNX) (OTCMKTS:BLNKF) from Buy to Hold a couple of weeks before the fateful blog post was published. Jefferies said that the risk / reward profile was shifting and the stock is likely at the end of its long rally, Blinkx shares rose over 200% in 2013. Jefferies further said that there was little visibility in the way the company generates revenue and they would recommend reducing risk in the portfolio.
IVG Immobilien slumps as ownership transfer to creditors
IVG Immobilien AG (FRA:IVG) (ETR:IVG), once Germany’s largest property company that traded at 35 euros/share in 2007, succumbed to its worst fall in 2014. Shares fell 77% as the company submitted an insolvency plan to Bonn court. IVG has been in trouble for some time now and applied to German court for approval of a debt restructuring plan by way of which it would be able to swap 2.2 billion of debt in exchange for new shares. According to this plan, the ownership of the company would transfer to creditors which include famous names like, Apollo Global, Cerberus Capital Management, BlackRock, Inc. (NYSE:BLK), Third Avenue Management LLC and Morgan Stanley.
Moving on to shortsellers, hedge funds who are betting against IVG include CapeView Capital and Oxford Asset Management. Total short interest amounts to only 3% of outstanding shares.
Ashmore Group and Aberdeen Asset Management fall with emerging markets
We have talked about these two earlier; the shakedown of emerging markets brought outflows in two of the leading EM-focused asset managers. Ashmore Group plc (LON:ASHM) (OTCMKTS:AJMPF) fell 22% through 2014, as $3.5 billion was pulled out of its funds in 4Q2013. Meanwhile Aberdeen Asset Management plc (LON:ADN) lost 23% of its share price as it reported $7.32 billion in outflows over the same period. Discovery Capital, Lansdowne Partners and Odey Asset Management benefited from the fall of Ashmore Group whereas Marshall Wace, Wellington Management and Odey profited on their short bets in Aberdeen.
More hedge funds’ short bets
Other short bets which have done fairly well in the new year include:
KONE Corporation (HEL:KNEBV) (OTCMKTS:KNYJF) is a Finland based escalators and elevators company. Shares of Kone have fallen 10% so far in 2014. Tiger cubs are shorting Kone in a pack, Lone Pine Capital, Discovery Capital and Coatue Capital, have bet against the Finnish company.
Shares of Apr Energy PLC (LON:APR) (OTCMKTS:APRYY) were down 9.6% YTD . The company has been a long-term short bet of hedge funds such as Odey Asset Management, Lansdowne Partners and Ennismore Fund Management. Shares of APR gained 22% in 2013, total short interest sums up to 6.9% of outstanding shares.