Heads Funds Lose $18B Betting Against Tech Rally29 Apr 2023 17:33
Hedge funds betting against US technology stocks have been battered by $18bn of losses after Big Tech’s robust earnings fuelled a sharp rebound in the sector.
Crispin Odey and James Hanbury are among the hedge fund managers burned by a 16 per cent rally in the Nasdaq Composite this year, as a number of stocks with high levels of bets against them defied pessimistic expectations.
Microsoft and Meta this week were among those producing better-than-expected earnings, extending a powerful stock market rally that has been narrowly focused on a handful of giant tech concerns. The latest gains left the combined market value of the five biggest tech companies $1.9tn higher on the year, a gain of 31 per cent.
The reversal in fortune comes after a difficult period in 2022, when rising interest rates caused a flight from high-growth companies. At the same time, pressure on Big Tech’s core markets like IT spending and digital advertising weighed on the sector, prompting many tech firms to make sweeping job cuts.
“The tech sector rally has caused significant losses for short sellers”, said Peter Hillerberg, co-founder of data group Ortex, which calculated the $18bn of total losses.
Tesla, whose periodic strong rallies have long been a source of pain for short sellers, hit speculators again this year as its stock surged 33 per cent.
Negative or so-called short bets, largely by hedge funds, account for 2.1 per cent of shares in Tesla, up from 0.87 per cent at the start of this year, according to S&P Global Market Intelligence
Hedge funds that shorted semiconductor stocks have lost $8bn so far this year, according to Ortex, while investors who bet against technology hardware and storage businesses lost $4.6bn. Bets against other parts of the US tech industry amount to more than $5bn.
Par Technology, which provide professional services software, is among the most shorted stocks, with 21 per cent of its shares on loan, according to S&P Global Market Intelligence. However, the company’s share price has jumped 15 per cent this year.
Hanbury, who made big gains last year from short positions, told investors that he had pared back his short bets before the start of the year, which had limited losses.
He removed his bet against Tesla entirely following the losses this year, while he also lost money betting against the performance of Cathie Wood’s Ark Innovation exchange-traded fund. Ark, which counts Tesla and Zoom Video Communications among its largest holdings, is up 12 per cent since the start of the year.
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