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These Are The Stocks Most Hated By Hedge Funds (And Why You May Want To Buy Them)

Tyler Durden's picture




 

Back in the summer of 2013 we revealed what the best "alpha-generating" strategy was in a New Normal where hedge fund clustering would ultimately lead to such dramatic hedge fund hotel implosions such as what was seen in the third quarter (described in detail in "What Hedge Fund Panic Looks Like") and where central banks themselves do their best to crush anyone who dares to short single names courtesy of $13 trillion in excess liquidity.

But while buying the most shorted names (expecting furious central bank and HFT-catalyzed short squeezes) had been a great way to outperform the market in 2012 thru 2014, in 2015 this strategy took a back seat as suddenly the most hated names revealed that there was a reason why they were most hated, and plunged as the Fed's determination to push stocks higher no matter the cost was put into question.

However, now that the Fed et al have made it beyond clear a downtick is unacceptable even as hedge funds are dramatically underperforming the market and are all - absolutely all of them - rushing to buy the same 5 stocks into year-end due to FOMO, even the tiniest deviation from a priced to perfection market will make the Valeant hedge fund hotel collapse of Q3 seem like a dress rehearsal if F, or A, or N, or G or all of them were to be Philidored.

It would also force a sequential scramble to cover shorts as margin calls are quietly and not so quietly administered on the increasingly underperforming hedge funds (for whom a crowdsourced margin call funding attempt will not be a feasible way out unlike novice E-traders).

What does all this mean?

Well, since central banks have made it abundantly clear they will not allow the S&P to drop even a few modest percent, and since going short the most beloved hedge fund names also carries with it the risk of substantial margin calls (not to mention inlimited downside) the best bearish trade into the year end is, paradoxically, to go long the most shorted names with the expectation that hedge fund blow ups will force domino-like, sequential short squeezes.

In other words, the most bearish trade going into the year end period is to go long a handful of very specific stocks.

So which are the stocks that have the highest hedge fund short interest as a % of market cap? For the answer we go to the latest hedge fund tracker by Goldman.

The answer: first, here are the stocks with a sub $1 billion market cap:

And next, the large, $1+ billion companies:

We will equal-weight CIX this basket and see how it performs relative to the market over the next few weeks. We hope to provide periodic updates on how this trade, made possible thanks to the Fed totally breaking the market's discounting function, is performing.

 

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Sat, 11/21/2015 - 19:03 | 6822379 HedgeAccordingly
HedgeAccordingly's picture

it is a vicous cycle.. pile in long or short.. let the table get lopsided.. run to the other side of the ship.. last one over drowns.. man overboard. 

Macro Hedge Funds Remain Net Short US Equities
Sat, 11/21/2015 - 19:10 | 6822391 FlacoGee
FlacoGee's picture

That sub $1B list is full of dogshit.    I couldn't go long on that shit even if I was using your money.

 

 

Sat, 11/21/2015 - 19:41 | 6822493 Racer
Racer's picture

You are obviously not a fund manager

Sat, 11/21/2015 - 19:58 | 6822555 nmewn
nmewn's picture

Well of both groups, long is a relative term for the stawks, average volume number of days to cover is what you should be looking at, so "long" is measured in days or weeks in some cases.

Bearing in mind your point that there is heavy short interest for a reason.

I wouldn't want any of them in my 401k, for "long" ;-)

Sat, 11/21/2015 - 19:13 | 6822400 barndoor
barndoor's picture

I saw all about these hedge fund hotels on that documentary "Inside Job".  Apparently there were hookers absolutely everywhere! And drugs.

Sat, 11/21/2015 - 19:30 | 6822456 buzzsaw99
buzzsaw99's picture

thanks janet

Sat, 11/21/2015 - 19:58 | 6822559 nmewn
nmewn's picture

lol

Sat, 11/21/2015 - 19:49 | 6822524 Amy G. Dala
Amy G. Dala's picture

So what is the order of significance between days to liquidate, short as % mkt cap, or popularity? 

I too see giant piles of dogshit in both these lists. 

Sat, 11/21/2015 - 20:19 | 6822634 arbwhore
arbwhore's picture

No PM miners? I am shocked.

Sat, 11/21/2015 - 20:24 | 6822653 57-71
57-71's picture

That's because there is nothing left to short in the miners! lol

Sat, 11/21/2015 - 20:53 | 6822804 Omega_Man
Omega_Man's picture

so as one shorts,  the other borrows money for buy backs - that should add a few trillion in money supply

Sat, 11/21/2015 - 21:13 | 6822840 commishbob
commishbob's picture

We have just been provided with a list of all the companies that have not (yet) contributed to Hillary 2016. 

Sat, 11/21/2015 - 23:53 | 6823373 Niall Of The Ni...
Niall Of The Nine Hostages's picture

Tyler, leave the stock tips to Cramer, all right?

Sun, 11/22/2015 - 06:31 | 6823807 Chia-Pet
Chia-Pet's picture

Bullish on shorts

Sun, 11/22/2015 - 06:51 | 6823827 maxamus
maxamus's picture

I'm bullish on girls wearing boy shorts.

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