The World's Top Performing Hedge Fund Just Went Record Short, Explains Why

Tyler Durden's picture

Last month, in our latest profile of the $2.8 billion Horseman Capital, we said that not only has that fund which some have called the "most bearish in the world" generated tremendous returns almost every single year since inception (except for a 25% drop in 2009 after returning 31% during the cataclysmic 2008), but more notably, it has been net short - and quite bearish on - stocks ever since 2012. In that period it has consistently generated low double-digit returns, a feat virtually none of its competitors have managed to replicate. In fact, its performance has put it in the top percentile of all hedge funds in recent years.

Furthermore, in a year most other hedge funds would love to forget, the fund "crushed it", with a 20.45% return for 2015 and 5.6% in the tumultuous month of December. 

Today, we got Horseman's latest numbers and they are a doozy: in what was one of the worst Januarys in stock market history, the fund returned a whopping 8%, putting it in the 99%+ percentile of returns for the month (and the year).


Indeed, "crushing it" is hardly new to Horseman: it has been doing so for four years in a row, and not surprisingly, 2015 was its best year since 2008. 2016 is starting off just as good as the prior year.

How did Horseman generate another month of phenomenal returns? In its own words:

This month strong gains came from the short equity book, in particular from the automobile, real estate and EM financials sectors while the long portfolio incurred a loss.

This is what Horseman's sector allocation looks like as of this moment:

Headlines were made last year by the clampdown of the Chinese authorities on the Macau casinos, who had been allowing Chinese residents to move their winnings out of China. However, despite the clampdown and the following fall in casino revenues by some 34% in 2015 (source: Macau's Gaming Inspection and Coordination Bureau), capital outflows have continued via other channels.


Imports from Hong Kong to China jumped 64% year on year in December, but the same numbers released in Hong Kong showed a 0.9% increase (sources: China and Hong Kong customs data). This could be explained by the practice of over-invoicing of Chinese imports from Hong Kong with trading partners that agree to inflate the cost of goods before a letter of credit is issued.


Chinese companies were involved in foreign acquisitions worth a total of $656bn last year and already this year, four of the biggest cross-border deals have involved Chinese groups bidding for US and European assets worth $61.7bn in total (source: FT).


Over the past few years Chinese companies have issued a large amount of US dollar denominated debt (see Russell Clark’s market note entitled ‘Spotting property Bubbles in East Asia’), in 2015 they sold a total of $60.3 billion worth of dollar-denominated bonds, more than six times the 2010 figure (source: Thomson Reuters data). In August last year, as China’s monetary authorities gave the signal that the Renminbi was not immune to devaluations, companies started to reduce their dollar exposure. Recently China SCE Property Holdings Limited said that it would redeem its $350 million senior note due 2017, while another real estate company, SUNAC China Holdings Limited said it had completed the redemption of its dollar note due next year.


China’s currency reserves declined by $420bn over the past 6 months and in January they plunged by $99.5bn (source: PBOC). The fund maintains a short exposure to sectors exposed to a renminbi devaluation such as luxury brands and Chinese property developers, and to other Asian currencies that would also have to devalue, such as the Korean Won and Singapore dollar.

In other words, another adherent to the "China will blow up" philosophy, which it may, however unlike Kyle Bass and a cohort of other China-bearish hedge funds, Horseman is instead betting on select Chinese sector shorts, as well as China's currency devaluation although not by shorting the Yuan, and instead is bearish on the Won and the SGD.

What was the fund most bearish on? Pretty much everything, but a few sectors in particular:

However, what is most remarakable about the hedge fund, is that while it has maintained its gross exposure, as of January 31, the fund's net short exposure has risen to a whopping 76%, an all time high, even for one of the world's most bearish hedge funds.


Finally or those seeking to glean some wisdom from the Horseman's inimitable Chief Investment Manager, Russell Clark, here is his latest letter.

* * *

My wife and I went see to the “The Big Short” the other day. It was certainly very amusing, and explained difficult financial concepts well. I will put it up there in my top three finance based films, along with “Trading Places” and “Margin Call”. I found Margin Call to be the least appreciated of these films, and yet for me most closely matches up to life in an investment bank in the 21st century.

For those that have not seen it, the film centres on a junior risk analyst, who discovers that the potential losses on the bank’s holding of mortgage assets were larger than its market capitalisation. He immediately informs his colleagues, who then pass it onto senior management. One of the recurring themes of the movie, is that the junior low paid staff are all maths and excel spreadsheet gurus, and the upper management are luddites. The junior risk analyst shows his excel model to management, and is constantly told “You know I don’t like these spreadsheets, just tell me what’s going on”. The analyst is eventually introduced to the Chairman of the Board, who asks him to “please, speak as you might to a young child. Or a golden retriever. It wasn't brains that brought me here; I assure you that.”

If you were unfamiliar with the world of finance, you would think this grossly unfair. The brainboxes of the world toil endlessly, while their know-nothing bosses take home the big bucks. However, I think this is wrong. As the Chairman of the Board elaborates, the reason he earns the big bucks is, “I'm here for one reason and one reason alone. I'm here to guess what the music might do a week, a month, a year from now. That's it. Nothing more.” The music in this case would be market prices.

The crux of the matter is that anyone telling you what the market is doing now, what the value of something is now, is providing you a freely available commodity; even if, in the cases of some derivative products, you need to be a rocket scientist to be able to give a valuation today. The real value add in markets is to be able to see what future values might be; that is to live in the future, not in the present.

I spend most of my time, while looking at current prices, thinking about and trying to live six months to one year in the future. Thinking about what will be the reaction to what is happening now, and then thinking about what that means future prices might look like. Generally that has worked well for me.

What I can see now is that US growth is slowing, and that the market is likely to price in reduced monetary tightening.

This should lead to a weaker dollar. This makes shorting Europe and Japan very appealing. Theoretically, this should make commodities and emerging markets (‘EM’) attractive, particularly if you are of the view that US dollar strength is the reason emerging markets and commodities have been so weak. However, I think we have chronic oversupply of commodities, and real financial issues in China that cannot be resolved easily. This makes commodity related areas very unattractive, despite the prospect of renewed monetary easing by the Federal Reserve. Furthermore, the reaction to reduced tightening by the Federal Reserve, would almost certainly be more easing by every other central bank in the world. But as we have seen recently with both the ECB and BOJ, monetary activism is not always effective.

I also worry about the prospects of a trade war, as populism becomes the new normal in politics globally. The future for me is now more uncertain than at any time I can remember. Or to fully quote the Chairman of the Board from Margin Call, “I'm here to guess what the music might do a week, a month, a year from now. That's it. Nothing more. And standing here tonight, I'm afraid that I don't hear - a - thing. Just... silence.”

Your fund remains long bonds, short equities.

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SillyWabbits's picture

That's the long and short of it!

Rainman's picture

Nails it ! ... something will go up and something will go down !

petar's picture

The most important news of the day was the meeting between the pope and the russian patriarch. That was the first meeting between the two churches in 1000 years. 

knukles's picture

The week's over.  Take some time off to recharge.  Relax. 
Find some quiet time. 
Take a nice walk.  Meditate. 


Be kind to someone.  You'll be repaid times over

NoDebt's picture

There comes a time in every man's life when he is tempted to spit on his hands, crack open a bottle of cheap whiskey and start drinking people under the table. 

This is such a time.  

 (Or words to that effect.  I don't feel like going to jail for slitting throats tonight.)

nmewn's picture

Same here, VO & water tonight.

And then see if I can get the blood off ;-)

Dig Deeper1's picture

Tippin' and sippin' the Lagavulin 16.  Cheers.

Manthong's picture

Ah, a fine single malt and a cigar… or…

decisions… decisions…

Saddam Miser's picture

I usually don't like hedge funds. But a hedge fund willing to short this three-ring shit show? I like that.

JRobby's picture

"The future for me is now more uncertain than at any time I can remember"


enough said

aPlayer's picture

"I'm here to guess what the music might do a week, a month, a year from now. That's it. Nothing more.” The music in this case would be market prices."

Very well said. 

Nobody For President's picture

Cleaned up this week with a TZA long, shorted out Friday way the fuck green, starting Saturday am with a nice CA Arneis, but a Glenlivet 12 awaits...gonna go flying this nice afternoon.

ilion's picture

I can probably beat your records on a simple and easy Forex trading contest of Vipro Markets: 

Cadavre's picture

Working the THC coke, or sludge, saved from the last time I cleaned the toke pipes screen, myself.-ish. At least I thinks that what it is.

Regarding the hedge fund shorts, it will take 30 days for the SEC to publish their 13Fs - at least our synogressional kiddie fondlers get a text update on fund position changes (thank buddah on a stack ofn tikis their watcxhing out for us)

JRobby's picture

Well, I woke up this morning
And I got myself a beer.
Well, I woke up this morning
And I got myself a beer.

The future's uncertain
And the end is always near.

Escrava Isaura's picture



Article: I found Margin Call to be the least appreciated of these films, and yet for me most closely matches up to life in an investment bank in the 21st century. 


Well, here’s why a psychopath likes this type of movies:

Roger Ebert wrote: "There is no larger sense of the public good. Corporations are amoral, Wall Street dishonesty and greed. Their company and their lives are being rendered meaningless.

A.O. Scott wrote: "Margin Call is a thriller, also a horror movie, with disaster lurking like an unseen demon outside the skyscraper windows and behind the computer screens. It is also a workplace comedy of sorts, full of reversals and double crosses, profane fables of deal-making machismo….deep, rotten, erotic allure of power.” 

Wikipedia: Although the film does not depict any real Wall Street firm, the plot has similarities to some events during the 2008 financial crisis: Goldman Sachs similarly moved early to hedge and reduce its position in mortgage-backed securities, at the urging of two employees. Lehman Brothers and Bear Stearns found themselves similarly and catastrophically over-leveraged in mortgage-backed securities. They scrambled, ultimately unsuccessfully.

Nobody For President's picture

Knuks - Thank You So Much for that. I forwarded it to all my important family members. (P.S. - My flying name is Penguin)

Arnold's picture

There is ca certain je ne sait quois in the air concerning organized religions except for the Jews.

That aroma is palatable.

Goliath Slayer's picture
Goliath Slayer (not verified) Arnold Feb 12, 2016 6:23 PM

The reason for this downturn is quite obvious though many pretend to be blind to it |o|

BullyBearish's picture

It is the unholy, self-serving alliance of the bankers and the politicians, without whose assistance they would have NOTHING.  That's why the only hope we have of actual change is to withhold our consent of a terminally corrupt system.  Voting for someone you don't believe in with all of your heart is a fool's errand and plays right into their hands.

MSimon's picture

Well. With all the Jew hate out there how do you expect them to behave? They still remember the last time.


BTW your link's theory is that the Jews are a race. That is not true. Anyone can become a member of the tribe if the desire is strong enough. That has always been true.

Farqued Up's picture

Then why does Israel require the bloodline of the mother to confirm Jewishness? Don't Jews declare themselves a suborder of the race which includes Semites? Either I'm confused or you are playing mind games. Educate me, please.

tarabel's picture



The Universal (False) Church coalesces.

All the world's armies gather in the Middle East.

"A quart of wheat for a denarius." 

Going Loco's picture

"All the world's armies gather in the Middle East."

"And standing here tonight, I'm afraid that I don't hear - a - thing. Just... silence.”

Escrava Isaura's picture



petar: The most important news of the day was the meeting between the pope and the russian patriarch.  


Thanks. That’s very interesting news indeed. Wonder why?

Vatican ll lead to major US coup d’état’s in South and Central America. So the Pope meeting Russian Patriarch in Cuba says a lot, for whoever fallows history and how the world works.


By the way, don’t worry about the down votes. These are stupid people that don’t know how the world works.


assistedliving's picture

couldnt a said it better....

roisaber's picture

That everybody and their mother is coming out bearish/short is making me somewhat nervous. When the herd moves left....

algol_dog's picture

Ya, I'm kind of with you on that, as well as Tyler pissin' all over himself finding a hedge fund manager predicting doom. So he's got a good record, so did Ackerman and all the other assholes the last year. Frankly, I'd rather go with a manager who had a bad year. The odds are better they'll swing back positive the coming year.

Boris Badenov's picture

You notice that the largest sector short is Financials? Also short Oil and that's paid off big. Kinda gotta read the tea leaves on this one. Also bullish on bonds, without any QE going on. Let this sink in: Central Banks have set in motion their own Doomsday Machines, bonds go up no-matter-what, and bank stocks are screwed no-matter-what. Even if the pilot takes his hands off the stick, it's still a Kamikaze moment. Time to pull the chute folks.

TradingTroll's picture

They will lose on their government bond positions

The Real Tony's picture

The masses are rising up against the FED and bankers (upheaval) and will eventually leave the stock markets as ash and rubble. Keep the faith. The DAX is in bear market territory. America can't rig everything forever.

Linus's picture

Gold skyrocked this week while the Chinese market was closed for they're New Year. It should be very telling if gold goes down next week after the Chinese re-enter the market.

Wild Theories's picture

why don't you look at some actual numbers, like what else went down during the week as gold went up.

the numbness of numbnuts are just astouding at times.


As the Engineer of what will happen in a week, month, or year from now I can safely say that there will be no economic activity in a year from now given the rate of implosion, and contagion, coupled with debt, and leverage.
Now add the Law of Large Numbers & The Law of Diminishing Returns to the mix of escalating bankruptcy filings and you will get the idea. Furthermore, within months the World's best performing Hedge Fund will be in the gutter with Kermit the Muppett.

Iam Yue2's picture

The Horseman of the Apocalypse

Consuelo's picture

Nah...  Those are fakes.


Here are the REAL 4 Horsemen...

12357111317's picture

Long live Dusty Rhodes!

The American Dream!   HARD TIMES!   :-)   HARD TIMES!   :-)

Lost in translation's picture

Wish there was a hacker here on ZH that decided to take your fecal blog DOWN.

Sick as Hell of you and your spamming.

thisguyoverhere's picture

Phuk you Russell Clark!!

Poor me, my wife and I only have our meager 1/2 billion we skimmed of the proles in China.

Our organ harvesting hedge is outperforming our abortion industry hedge, but NOW the suicide net industry is declining as Chinese authorities have decided to simply sequester workers and use the new and improved one bullet policy.

The worst news is that the wealth extraction in US markets is coming to a close since we are only months away from THE CULLING.

Loss of the scalability of this market will be offset by a hedge in the vice trade and calls on Soylent Green.

In other news we are currently setting up a crowd fund for Hillary, since she needs so much help, at least thats what my wife says. Hillary visits her at the private flat when she's in town.

While you are reading my concerns about the market, I'm skinning my latest foster child for the ceremony this evening.

Hugs and Cuddles,

Russell Clark


besnook's picture

the vision of short guys are always clear. when in doubt, short it. doubt creates fear. fear creates liquidations.

assumptionblindness's picture

Record shorts = record short SQUEEZZZZZZE!

assumptionblindness's picture

Those of us who have been CRUSHED in the past have been conditioned NOT to short... The question is: Are the rules different this time? We'll see.......

11b40's picture

IMHO, if you truly get the fundamentals and trends, shorting is the easiest, safest bet. That is, until the market becomes grossly manipulated. Then, it becomes surest way to lose your ass.

12357111317's picture

"Headlines were made last year by the clampdown of the Chinese authorities on the Macau casinos, who had been allowing Chinese residents to move their winnings out of China."  Would one of those casino owners be Sheldon Adelson?

I also liked the part about Chinese companies issuing USA dollar-denominated debt.  Didn't those companies read John Perkins "Confessions of an Economic Hitman"?  Or, did they start reading it in 2015, and was that why they paid off that debt?

A82EBA's picture

aint that the top boss from margin call movie?

DipshitMiddleClassWhiteKid's picture

the problem with pricing models today is the assets are all controlled by the central banks and HFT parasites


if they were truly priced by supply and demand, it'd be something else......

Soul Glow's picture

Because he reads Zero Hedge.