Tags: Stocks | Hedge | Funds | Market

Stocks Held by Hedge Funds Lead Market Rout

Wednesday, 15 October 2014 06:01 PM

Companies with the highest hedge-fund ownership are leading the recent U.S. market selloff, with stocks from Ally Financial Inc. to Zynga Inc. retreating twice as fast as other shares over the past month.

The 10 companies in the Russell 1000 Index in which hedge funds own the biggest stakes are down an average of 16 percent since the gauge’s all-time high on Sept. 18 through Wednesday, according to data compiled by Bloomberg. The full index has lost 7 percent over the stretch.

Selling by professional money managers trying to unwind popular trades may be exacerbating moves in U.S. stocks that have sent benchmark measures for volatility to two-year highs. A comparison by Mark Connors, Credit Suisse Group AG’s global head of risk advisory, found top holdings of the private investment pools down 8.6 percent in October, 3 percentage points more than the Standard & Poor’s 500 Index.

“Every hedge fund is trying to out-hedge the other and as soon as they see a downward pullback in a sector like small- to mid-caps or energy, they’re all getting out,” Dan Neiman, who helps oversee $750 million at Williamsville, New York-based Neiman Funds Management LLC, said in a phone interview. “They want to get out quick to avoid a down year, and that’s not healthy for the environment, they create a lot of downward pressure on the market.”

Manager Resistance

Hedge fund long bets are trailing the market by the most for any rolling nine-day stretch since at least the start of 2013, Connors wrote in a note today to clients. Industrial stocks, particularly transportation, and energy shares have spurred the biggest underperformance.

At the same time, managers have resisted pushing up bearish stock bets, with a Credit Suisse ratio of long-to-short holdings falling to 41 percent from 42 percent in September. By contrast, the ratio dropped to 23 percent from 40 percent as markets declined around June 2012, Connors’s data showed.

Funds measured by the HFRX Equity Hedge Index, which tracks both long and short strategies, fell 3.1 percent this month through Oct. 13, on course for the worst performance since September 2011. The S&P 500 was down 5 percent in the period.

Hedge Funds

Discovery Capital Management LLC, the $15 billion macroeconomic hedge-fund firm run by Robert Citrone, slumped 8 percent in the first two weeks of October, according to a person with knowledge of the returns. Claren Road Asset Management LLC, the hedge-fund firm majority owned by Carlyle Group LP, fell about 11 percent in one of its funds in October, according to three people with knowledge of the returns.

The Chicago Board Options Exchange Volatility Index, which tracks expectations for price swings in the S&P 500, jumped 61 percent this month to 26.25 at 4:15 p.m. in New York Wednesday, the highest close since June 2012.

“The reactive selling is institutional,” Gene Peroni, portfolio manager at Advisors Asset Management Inc. in Conshohocken, Pennsylvania, said in a phone interview. His firm oversees about $14.7 billion in assets. “Now redemptions are coming in, and that’s putting more pressure on the market. All these things are in the mix for perhaps exacerbating the move.”

Biggest Slump

At 8.7 percent, the S&P 500 decline that began 19 days ago now eclipses three earlier retreats this year and is the biggest since equities plunged 9.9 percent starting in April 2012. European stocks fell the most in almost three years Wednesday, taking their decline from a June high to 11 percent.

“The good thing is: the accelerated move probably means this won’t be a long and drawn-out decline,” Peroni said. The selloff will “probably be one of these sharp, short-lived retreats,” he said.

Here are the 10 companies with the biggest hedge-fund stakes, according to data compiled by Bloomberg. The stock moves are from Sept. 18 through Wednesday:

- Burger King Worldwide Inc. lost 5.2 percent. The fast- food restaurant seeking to buy Tim Hortons Inc. has the highest hedge-fund ownership in the Russell 1000 at 86 percent.

- Refiner CVR Energy Inc., based in Sugar Land, Texas, dropped 12 percent. Oil entered a bear market.

- Spectrum Brands Holdings Inc. fell 2.5 percent. The Middleton, Wisconsin-based company is buying Procter & Gamble Co.’s remaining pet-food business.

- Ally Financial Inc. declined 15 percent. The U.S. Treasury Department cut its stake in the Detroit-based auto lender in August.

- Online gaming company Zynga Inc. slumped 26 percent, taking its loss since its high in March to 61 percent.

- NorthStar Realty Finance Corp. fell 1 percent. The New York company that has been building a health-care property business agreed to buy Griffin-American Healthcare REIT II in August.

- Liberty Ventures, an Internet company based in Engelwood, Colorado, sank 22 percent.

- Seventy Seven Energy Inc. of Oklahoma City tumbled 37 percent. The slump in oil wreak havoc in small oil and gas companies.

- Platform Specialty Products Corp., a chemical company whose largest shareholder is Bill Ackman, retreated 12 percent.

- Solar company SunEdison Inc. plunged 29 percent.

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Companies with the highest hedge-fund ownership are leading the recent U.S. market selloff, with stocks from Ally Financial Inc. to Zynga Inc. retreating twice as fast as other shares over the past month.
Stocks, Hedge, Funds, Market
Wednesday, 15 October 2014 06:01 PM
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