Hedge Fund Shorts Soar In Euro Stocks As Firms Target ‘Fraud’, Mergers

Novus short observer April Europe

Short interest in European stocks increased from $24,154,156,685 in March of 2013 to $30,430,490,302 in 2014, while profits on those European short positions disclosed by hedge fund managers outperformed an equivalent short on the general markets in April. according to the most recent research from Novus.

Hedge fund shorts: Novus model portfolio down 1.19% vs 2.05%

The Novus model value-weighted portfolio based on public short positions in Europe lost 1.19% compared to a loss of 2.05% for a short on the iShares S&P Europe 350 Index (ETF) (NYSEARCA:IEV), including dividends.

Managers short frauds, says Altshuller

“Managers are short potential frauds, and are making money on that,” said Stan Altshuller, Chief Research Officer at Novus. “Markets are showing signs of dispersion where poor quality names underperform and stock picking actually works. This is in contrast to the uniform melt up last year where managers have not been able to generate alpha shorting stocks.”

Novus Europe Hedge fund shorts:

The top hedge funds with short positions in Europe during March were perennial shorts: Lansdowne Partners, followed by AQR Capital management, Odey Asset Management, Marshall Wace and BG master fund, all with total short positions exceeding $1 billion.  The top stocks that were subject of the shorts included Gemalto NV (EPA:GTO) (OTCMKTS:GTOMY), Publicis Groupe S.A. (ADR) (OTCMKTS:PUBGY) (EPA:PUB), Volkswagen AG (ADR) (OTCMKTS:VLKAY) (ETR:VOW) and Glencore Xstrata PLC (LON:GLEN).

European Short Observer

Gemalto

Gemalto

Publicis Groupe

Publicis Groupe

Volkswagen

Volkswagen

Glencore Xstrata

Glencore Xstrata

Quindell

Quindell

Merger activity picking up helps hedge fund shorts

Novus most common shorts europe Hedge fund shorts:

Merger activity is picking up and managers are participating by selling short acquiring companies.

The report noted that a short in France-based advertising company Publicis Groupe S.A. (ADR) (OTCMKTS:PUBGY) (EPA:PUB) worked for hedge funds as the company revealed hurdles to the announced merger with Omnicom, which cast doubt on the deal.

A stock that hurt fund managers most was Finland-based Metso Oyj (ADR) (OTCMKTS:MXCYY) (HEL:MEO1V), who announced a proposed merger which had three fund managers covering their short on the day of the news. Marshall Wace, on the other hand initiated short coverage the day after the merger was announced.

The largest increase in short interest, the report noted, was Innate Pharma SA (EPA:IPH) (OTCMKTS:IPHYF), a biopharmaceutical company whose shares dropped 30% over the month.  Likewise, Quindell PLC (LON:QPP) (OTCMKTS:QUPPF) saw a 30% drop in its share price after a research report was published suggesting fraudulent activity.  Other potential fraud related shorts, according to Novus, include Royal Imtech NV (AMS:IM) (OTCMKTS:IMTEF) and Blinkx Plc (LON:BLNX) (OTCMKTS:BLNKF).



About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com