Hedge Funds Capitulate On European Shorts

With the European markets having put on a stealth performance, the summer has been rather sweaty for the shorts. From Bloomberg.

Bulls say professional investors buying back shares that were borrowed and sold short are fueling a rally led by European Central Bank President Mario Draghi’s pledge to defend the euro. The Euro Stoxx 50 is up more than 12 percent in three weeks, twice the gain of the MSCI All-Country World Index (MXWD), even as the euro-area economy is forecast to slide into recession. Bears point to a drop in earnings estimates after profit fell about 10 percent last quarter as a sign stocks in Europe may fall.

“Macro hedge funds missed collectively the policy news of June, and with the prospect of central bank interventions they are now capitulating,” Nikolaos Panigirtzoglou, head of globalasset allocation at JPMorgan in London, said in an Aug. 7 phone interview. JPMorgan has $2.3 trillion under management. “For positions to unwind, a trigger is needed. And the trigger was all this policy news.”

Hedge funds last closed short bets this fast in April 2009 just before a 35 percent rally in the Stoxx 600. Macro funds have failed to keep up with the market this year, rising 0.1 percent compared with an 8.1 percent advance in the MSCI World Index of equities in developed economies, according to data compiled by Bloomberg.

….and it has been a tough ride for even the best.

Moore Capital Management LLC’s Louis Bacon said this month his main fund will give back $2 billion to investors, about 25 percent of the money in his main hedge fund, after returning just 1.6 percent through July. Ray Dalio, who runs Bridgewater Associates LP, lost 2 percent in his $54 billion macro fund through July 20, according to investors. Alan Howard, who runs Brevan Howard Asset Management LLP, lost 1.3 percent in his Master Fund.

Full article here.