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Hedge funds rush to unwind short bets.

 Hedge funds wrong­footed by a sharp surge in stocks this week rushed to exit los­ing bets on fall­ing

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mar­kets at the fast­est pace in years. Equity mar­kets have risen sharply this year, led by many of the spec­u­lat­ive stocks that were clobbered hard­est dur­ing 2022’s global sell-off. Many of the funds that profited from the rout have found them­selves poorly posi­tioned for the rebound, which has recently accel­er­ated as investors sensed that interest rates were close to peak­ing in many large eco­nom­ies. The scale of hedge fund buy­ing, which helped fuel a 3.3 per cent jump in the Nas­daq index on Thursday, eclipsed that seen in Janu­ary 2021 when retail investors co-ordin­at­ing their actions on for­ums such as Red­dit sent the price of GameStop and other meme stocks rock­et­ing, inflict­ing huge losses on some funds.

Funds closed their bets primar­ily against US stocks but also against European com­pan­ies. Bets against stocks that had pre­vi­ously been fall­ing for an extended period were «under MAX pres­sure», Gold­man wrote in a sep­ar­ate note on Thursday. «We saw explos­ive move higher» in soft­ware stocks, «driven by con­sist­ent hedge fund cov­ers all ses­sion,» it added. The bank estim­ated on Thursday that quant­it­at­ive hedge funds lost about 1.3 per cent that day, their worst day in more than six months.

Among stocks that have stung hedge funds this year is online car retailer Carvana, which fell 98 per cent last year but is up 200 per cent in 2023. The rally in stocks that were hard hit in the previous year «has likely provided a big tech­nical tail­wind for the non-prof­it­able tech uni­verse and has been hurt­ing the sys­tem­atic com­munity», wrote ana­lysts at Gold­man.

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  1. Carl6 February 2023 at 12:25

    I have a friend that bought into Carvana heavily when its price was falling. He didn't get much shares when it was at 98% low but he bought a lot along its way down and can now take out his initial money (if he wants) and still be left with a lot of profit.

    ReplyDelete
    Replies
    1. Maxwell6 February 2023 at 13:28

      Being scared when the market is down makes you do stupid stuff and make bad decisions. When the market is low, don't sell. Try to buy then. When it's high, don't buy. Sell then.

      Delete
  2. Damon6 February 2023 at 14:40

    @Maxwell If our emotions didn't get the best of us we would all (or a lot of us) be very rich by just doing what you've just said.

    ReplyDelete

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