"World's Most Bearish Hedge Fund" Reveals Its New Big Short
t has not been a good year for the "world's most bearish hedge fund", Horseman Global, which after losing another 1.3% in November is now down -5.3% YTD, which is perhaps to be expected for a fund which was net short -74.4% in November (and gross -137%) in a year which at least until recently, most stocks made new all time highs.
However, the luck for Horseman, and its CIO Russell Clark may be about to turn because as the fund reveals in its November letter, it is short precisely the one sector that is getting absolutely pounded right now, namely semiconductors, which after yesterday's abysmal guidance from Micron, tumbled more than 4% today to the lowest level since September 2017.
To be sure, while the Fed had been down double digits until September, things reversed and as Clark writes, "October and November have been pleasing in a way, as the largest single short sector in the fund has started to trade in a way that is favourable to us, and driven by many of the factors that we identified earlier in the year. During November, we had Apple suppliers warning that growth was slowing, while Nvidia also warned on earnings as the collapsing cryptocurrency price finally impacted on demand for high end semiconductors. We also continue to see declining prices for memory chips (Apple is the biggest buyer)."
Indeed, all those trends have only extended favorably for Horseman in the past few weeks, and as Clark notes, "even though the broader semiconductor index bounced into month end on the back of a dovish Federal Reserve and potential trade war truce, the underlying dynamics still look terrible."
And between the slowdown at Apple, which "has only just begun" while Bitcoin continuing to tumble and making life for Nvidia even more complicated, Clark notes that "the political dynamics between China and US make it hard to be bullish on semiconductors."
Which is why Horseman is confident that semiconductors are the "big short" for the current market cycle and is why it maintains it "as our largest single short area."
To be sure, the quite bearish Horseman has had its trials in the past several years, with Clark writing that "being a decent short seller during the most epic bull market of all time (at least in the US) is like being sommelier at Oktoberfest." But now that the bear market appears to be finally ending, and the Fed in now rush to turn dovish, Clark may just enjoy some long overdue accolades for having some of the most original ideas in recent years. All that he needed was a little luck and a turn in the market. Both may have just struck.
For more details, we repost his latest letter to clients in its entirety.
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Your fund lost 1.32%. Losses on the long book where not compensated by gains in the short book and currency book.
I started working for UBS Private Banking in Sydney on Valentine's Day 2000. I still remember going to my first morning meeting and being introduced to the model portfolio for clients. At the time, the international portfolio included Broadcom, Worldcom, Nortel Networks, Vodafone, Nokia, Sony and NTT Docomo among others. All the talk was about the internet, mobile phones, media companies, routers, switches and other things I knew nothing much about. I was so taken with technology, that I ploughed my first pay cheque into a bunch of Australian technology stocks. Of course, they then fell to more or less zero.
This rather painful experience has led me to always have a reason for why I buy a stock, and to have a reason for why I will sell them. Over the years, this has meant I have a pretty decent record for short selling. Of course, being a decent short seller during the most epic bull market of all time (at least in the US) is like being sommelier at Oktoberfest.
rest at link
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This is a prime example of day late and dollar 'short'. This fund is telling it's clients to short it's picks. This is based on it's performance up until mid-Nov. Coming out with this in the final weeks of the year is just a little late to the party imo.
Do your own research and make your own decisions.
Guy looks like a douche anyway.
https://www.zerohedge.com/news/2018-12-19/worlds-most-bearish-hedge-fund-reveals-its-new-big-short