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European Hedge Fund Shorts Outperform Rising Stock Market

2014 very different market environment for short sellers than 2013

After a “frustrating” 2013, when “bad stocks were lifted in a good market,” said Stanley Altshuller Co-Founder and Chief Research Officer at Novus, a research firm that monitors hedge fund short positions in Europe. The difference now is that “the market is behaving like a stock pickers market in contrast to 2013 which was a general melt-up.

Now bad companies are under performing so managers are using stock selection to generate alpha.” In May alone hedge fund managers generated 200 basis points of alpha on short positions, highlighting the changing market environment. The European short portfolio Novus tracks in its short adviser program is a market value-weighted portfolio of every publicly disclosed hedge fund position in Europe, tracking the aggregate shorts in Europe on a daily basis. This model representing hedge fund shorts has recently outperformed “precisely due to stock selection,” noted Altshuller.

Hedge fund alpha up in stock picking environment

In other words, hedge funds may be finding their inner alpha all while the beta of the stock market marches higher. Consider the German Dax index. It started the year at 9400 and today, on the back of a negative interest rate announcement from the ECB, peaked its head above 10,000. This is a bull run, yet underneath it hedge fund short positions nonetheless are outperforming, according to Novus.

 

Read full article http://www.valuewalk.com/2014/06/european-hedge-fund-shorts-outperform-rising-stock-market/

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