Late last week, we reported [14]that as of mid-August hedge funds are set to record their seventh consecutive years of market underperformance (unless the S&P crashes into year end, the Fed does not lose control, and hedge funds actually end up being "hedged").
[15]
Perhaps the main reason for this has been that over the past several years hedge funds have largely lost their stock-picker creativity (after all in a centrally-planned world the best returns come from levered beta, not targeted alpha) and courtesy of non-stop idea dinners (extensively swept for bugs beforehand) have made the same handful of stocks their top holdings. We presented the 50 most popular hedge fund stocks last week [16]:
[17]
And while this "hedge fund" hotel strategy works on the way up, when everyone makes roughly the same profits, it is on the way down when these hedge fund hotels become "Hotel California" - hedge funds can check out, and sometimes they can even leave... with massive losses.
According to a Bloomberg analysis [18], many of these hedge fund hotel stocks, or companies where hedge funds hold a combined stake of at least 25%, suffered declines of as much as 42 percent in the recent stock market rout.
Bloomberg highlights the five biggest such losers in the past week among companies with at least $1 billion in market value, a period in which the Standard & Poor’s 500 Index fell 10 percent.
- Jumei International Holding Ltd.
The online cosmetics retailer’s American depositary receipts plunged 42 percent in the past week as the Chinese company issued sales guidance that was short of analysts’ estimates. Jumei has also been hit by a slide in U.S.-listed shares of Chinese companies after the People’s Bank of China devalued the yuan on Aug. 11. That’s bad news for hedge funds, which owned about 30 percent of ADRs listed in New York. Biggest U.S. hedge fund holders: Discovery Capital Management and Ardsley Advisory Partners
- SunEdison Inc.
Shares of the world’s biggest clean-energy developer were up 65 percent this year at the peak in June. The company has erased those gains and then some, plummeting 27 percent in the past week alone. Even forming an investment vehicle with Goldman Sachs Group Inc. worth $1 billion hasn’t stalled a decline in SunEdison’s stock that baffled analysts earlier this month. Hedge fund firms held a combined 48 percent stake in the company. Biggest U.S. hedge fund holders: Greenlight Capital, Third Point and Glenview Capital Management
- California Resources Corp.
The shares dropped 27 percent in the past week as the company’s bonds also declined. The oil producer has been under pressure from falling crude prices. Hedge fund firm BlueMountain Capital Management said in June that CRC’s common stock was “worthless” and its debt would have to be restructured. Hedge funds owned 30 percent of the shares as of the second quarter. Biggest U.S. hedge fund holders: Soroban Capital Partners, RR Partners and Cyrus Capital Partners
- Atara Biotherapeutics Inc.
The drug developer that went public in October lost 24 percent in the past week. Shares of the company, which have gained 43 percent this year, have been sliding since the company reported second-quarter earnings that missed expectations on Aug. 6. Hedge funds owned 26 percent of the stock. Biggest U.S. hedge fund holders: Baupost Group, Visium Asset Management, Bridger Management
- Whiting Petroleum Corp.
The shares have fallen 55 percent this year, including 21 percent in the last week as the price of oil has plunged to fresh lows. Whiting, the largest energy producer in North Dakota’s Bakken shale region, trimmed plans for this year’s capital spending when it announced second-quarter earnings results on July 29. Hedge funds owned 33 percent of the company. Biggest U.S. hedge fund holders: Paulson & Co., Citadel and Viking Global Investors
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Now, the only reason these hedge fund hotels tumbled as they did is that unlike Allergan, Apple, and Facebook, they were not deemed "systemic" enough for the hedge fund space. Because should AAPL ever be hit with a 42% drop, expect to see line of billionaires stretching around the Treasury building block, all demanding either the latest Tim Cook private letter to Jim Cramer, or, failing that, a bailout.
