Activist short sellers have ramped up activity this year. During the first half of 2020, dozens of stocks have seen wild price swings. Many biotech companies saw their stocks skyrocket after they joined the race to develop a COVID-19 vaccine. The rise of the so-called Robinhood traders has also caused many stocks to behave irrationally, giving activist short sellers some lucrative opportunities. Here we take a look at the most prolific activist short sellers in the first half of 2020.
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Shorting amid the rise of ‘retail bros’
The current market uncertainty and wild swings mean a short seller needs to have a strong conviction in their bets. Thanks to the stay-at-home Robinhood traders, a bankrupt stock could rise 1000% in just a few hours.
The activist short sellers have jumped in with shorting strategies that Breakout Point labelled as “inverse Robinhood strategies.” They have targeted stocks hyped up by traders. Some of their short calls have delivered handsome campaign returns.
But many stocks they targeted have shot up despite the short seller making serious allegations about the companies. For example, Wins Finance Holdings has gained about 30% since Hindenburg published its short thesis.
Most prolific short sellers
These are the most prolific activist short sellers in the first half of 2020. Breakout Point has listed them based on the number of short calls in H1 2020. There were 91 major activist short calls in the first six months. Just eight short sellers accounted for nearly 54% of those calls.
Hindenburg Research was the most prolific activist short seller with 15 short calls. Hindenburg founder Nate Anderson told Breakout Point that 2020 presented “more opportunities than ever.”
Its most successful short call was the Hong Kong-listed China Metal Resources. The stock sank about 84% after Hindenburg published its report. Hindenburg had alleged that the company engaged in dubious accounting practices and stock price manipulation. The activist short seller also made big money shorting Genius Brands International Inc and Pharmacielo Ltd.
Ben Axler’s Spruce Point Capital occupied the second spot with eight short calls in the first six months of 2020. The investment manager published reports shorting LHC Group, Dropbox, Amcor Plc, WD-40 Company, Align Technology, Forescout Technologies, and Prestige Consumer Healthcare.
White Diamond Research was not far behind with six short calls. It was the best performing short seller in 2018. White Diamond’s short campaign targeting the Nasdaq-listed Chinese bitcoin mining company Canaan has returned about 60%. The short seller primarily focuses on tech and healthcare sectors.
Short seller ShadowFall Research announced in January that it was shorting Switzerland-based banking software maker Temenos. ShadowFall alleged that the Temenos management had sold $809.5 million worth of stock since 2013. It was also shorting the online fashion firm Boohoo.com.
Muddy Waters Research, J Capital Research, Citron Research, and Grizzly Research have each published four short calls. J Capital Research emerged the best short seller in the first half of 2020. Four of its target stocks were down 28% on average by the end of June. The most successful short call for both Muddy Waters and J Capital was the Chinese coffee chain Luckin Coffee.
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Carlson Block’s Muddy Waters has a knack for launching an all out assault on the companies it is shorting. It published an anonymous report in January targeting Luckin Coffee. J Capital joined the bandwagon in February.
Their short calls returned an impressive 92% after Luckin Coffee’s fraudulent accounting practices came to light. According to a WSJ report, Luckin Coffee’s chairman was aware of – if not directly involved in – the fraud.
Citron Research made a bold bet against the NYSE-listed Chinese firm GSX Techedu. But it hasn’t gone well. The stock has more than doubled since Citron published its report. The short seller had labelled GSX Techedu as “the most blatant Chinese stock fraud since 2011.” Citron alleged that the Chinese company was overstating its revenue by up to 70%. Grizzly Research is also shorting GSX Techedu.