Top 10 Funds & Stocks at Risk of Being Squeezed in Market Turmoil
An 8.5 percent drop in the Shanghai Composite index in Monday’s trading session spread to financial markets across the world. In the US, the S&P 500 was down 4.9% on Monday trading, after steeper declines in Asian and European stock markets. We’ve seen this before, and it usually precedes hedge fund stress, underperformance and, at times, liquidation. So far, they’re doing OK. There’s little evidence of Hedge Funds liquidating positions, but certain hedge funds are at risk of being squeezed. In the full Symmetric liquidation report we follow three lines of analysis to conclude that:
Crowded HF positions slightly underperformed in the recent turmoil
HFs as a group do not appear to be liquidating their positions
Specific hedge funds are at risk of being squeezed by liquidations
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Specific Hedge Funds at Risk of Being Squeezed We look at two factors to determine if a fund is at risk of being squeezed:
Stock Specific Stress: We calculate the overall stock specific stress for a fund’s publicly available positions. The stock specific stress measured across each manager’s portfolio registers the return of the fund’s publicly disclosed portfolio run in a market, beta and sector neutral fashion
Liquidity: We calculate how long it would take the manager to liquidate each position in their portfolio assuming they traded 30% of daily volume in each stock they own. We then calculate what percentage of manager’s positions would take more than 1 month to liquidate.
We think that managers who have seen significant stock specific stress coupled with a highly illiquid book, that would take a significant time to liquidate, are at risk of being squeezed. If the fund continues to see stress in its positions and must liquidate positions in order to reduce risk, those positions are likely to suffer even further as the market takes advantage of the knowledge that there are more sell orders to come. The table below shows a list of funds, with their MTD change in stock specific stress, AUM and the percentage of positions that would take more than 30 days to liquidate at 30% of volume.
Name MTD Stock Specific Stress Regulatory AUM % of Portfolio that is Illiquid Largest Illiquid Holding PERSHING SQUARE CAPITAL MGMT -4.17% 22 BN 100 VRX VALUEACT HOLDINGS LP -1.44% 19 BN 58 VRX BAKER BROS ADVISORS LLC -2.96% 11 BN 54 INCY SCOPIA MANAGEMENT INC -2.42% 9.8 BN 50 SPR SACHEM HEAD CAPITAL MANAGEMENT -1.50% 2.6 BN 46 CDK RA CAPITAL MANAGEMENT LLC -4.30% 1.8 BN 34 AXON BROADFIN CAPITAL LLC -3.82% 1.6 BN 32 FLML DEERFIELD MANAGEMENT -3.20% 7.5 BN 27 FLML PERCEPTIVE ADVISORS LLC -5.36% 2.4 BN 15 RTRX JERICHO CAPITAL ASSET MANAGEMEN -5.59% 3 BN 13 BID
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