Quant Insights: Exploring hedge fund short positioning

Since the Covid-19 pandemic started accelerating in Italy in late February, European markets have tumbled. Almost all European stocks are in negative territory year-to-date irrespective of sector, industry, or country of origin. In terms of scale, the quarterly drop is the highest in 33 years, and the intensity of it is unusually high – more than 35% of the total market capitalization has been lost in only three weeks.

It is likely the only investors who made partial profits out of this were those hedge funds who had short positions in stocks.

According to Caretta Data, a US-based company specializing in a buyside analytics, 199 hedge funds had at least one short position on a European stock on 20 February 2020. The average size of their position was around 1% of the total shares outstanding and the biggest position’s size in terms of shares outstanding was at 18.5%.

As Figure 1 shows, as of March 31, the most shorted sectors were Energy and Industrials, whereas the least shorted sectors were Healthcare and Financials.

Figure -1: Average short positions as % of total shares of outstanding on 31.01.2020.

Did you find this useful? Get our EPFR Insights delivered to your inbox.

Related Posts

Comfort with China exceeds $1 trillion

Comfort with China exceeds $1 trillion

At the turn of the century, investing in China was viewed as a risky proposition. Foreign access to a notoriously volatile, retail-driven equity market was heavily restricted. The lack of a credible regulatory framework and legal protections deterred US venture capitalists from making direct investments in Chinese companies. In many cases, Chinese banks and the country’s fledgling private equity industry also balked. So, when Chinese technology firm Alibaba received its first $25 million investment from Goldman Sachs in 1999, investors sat up and took notice.

Better, More Actionable Insights

Let us show you how EPFR can create value for your specific strategy

 
 

*Indicates required fields

By ticking this box, you agree to receive marketing communications from EPFR. You can review your email preferences upon submitting this form