Hedge Fund Favorite Short Positions

Hedge Fund Favorite Short Positions

Hedge funds were more successful in their long positions as compared to the short portfolios in last year, owing in part to the repeated infusions of fiscal easing from central banks that led to an artificial rally in equity markets.

Goldman Sachs’ quarterly hedge fund trend monitor reports that hedge funds account for a major chunk of all short interest in equities, as high as 85 percent of the net short interest. The days to cover ratio rose to 2.4 days in 2012, up from 1.8 days in 2011.

Hedge Fund Short Interest

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Hedge funds reclaimed short interest in Exxon Mobil Corporation (NYSE:XOM), International Business Machines Corp. (NYSE:IBM) and General Electric Company (NYSE:GE) in last quarter bringing them forward in their top 20 short holdings.

Note that Goldman Sachs’ data excludes those S&P500 stocks that are in its VIP (Very Important Positions) Basket of long holdings. The VISP (Very Important Short Positions) is a list 50 S&P 500 stocks compiled by GS that ranks them on the basis of short interest as a percent of  float-adjusted shares, this portfolio was up 13 percent in 2012 and has gained 7 percent YTD in 2013.

The top ten in the VISP basket in descending order are, Intel Corporation (NASDAQ:INTC), Exxon Mobil Corporation (NYSE:XOM), International Business Machines Corp. (NYSE:IBM), AT&T Inc. (NYSE:T), Gilead Sciences, Inc. (NASDAQ:GILD), Chevron Corporation (NYSE:CVX) and The Walt Disney Company (NYSE:DIS), Verizon Communications Inc. (NYSE:VZ), Caterpillar Inc. (NYSE:CAT) and Amgen, Inc. (NASDAQ:AMGN).

The top five in the list of ” 50 stocks over $1 billion with largest short interest as % of market cap” in last year were, Coinstar, Inc. (NASDAQ:CSTR) up from 33 percent to 45 percent in Q4, Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR), Deckers Outdoor Corp (NASDAQ:DECK) up from 37 percent to 43 percent in Q4, NII Holdings, Inc. (NASDAQ:NIHD) and Herbalife Ltd. (NYSE:HLF). Not surprisingly Herbalife Ltd. (NYSE:HLF) mades it into top five of the list with 35 percent of the market cap held as shorts, when it was not even included in the similar list of 50 stocks for Q3.

Herbalife Ltd. (NYSE:HLF) did not merely make an entry into the short interest list, it also made the 34th spot in the list of “50 stocks with largest increase in hedge fund concentration”.

As of 31 Dec, 22 percent of the equity is held by hedge funds which is up from 10 percent in 3Q2012. The stock is now owned by 40 hedge funds out of the 725 on Goldman Sachs’ watchlist.

Short interest in Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), Molycorp Inc (NYSE:MCP), Netflix, Inc. (NASDAQ:NFLX)  declined while J.C. Penney Company, Inc. (NYSE:JCP) and Pitney Bowes Inc.(NYSE:PBI) recruited more short sellers in Q4 as compared to Q3.

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