Hedge funds with long/short strategies benefited from a macroeconomic environment in 2024 in which the most shorted stocks were hit particularly hard compared to their less shorted rivals, according to a new report from UBS.
So far, the stocks of the most shorted companies have actually outperformed their peers in the last two months of 2023, a situation that has had a negative impact on the returns earned by hedge funds with long/short strategies. was giving.
Now, that trend has reversed, and since the start of the year, we've seen the stocks of the most shorted companies suffer more than those of the least shorted companies, regardless of size or sector.
This turnaround has so far provided a boost to hedge funds employing long/short strategies in 2024, with the most shorted stocks underperforming relative to their competitors, leading to short sales. The changes are such that the gamble is paying off.
Analysts at UBS are now beginning to refer to the current macroeconomic environment as “hedge fund nirvana,” a nod to the Buddhist extreme optimism of escaping the endless suffering experienced in cycles of birth and rebirth known as samsaras. There is.
Companies that were heavily shorted, including Marathon Oil MRO;
Bath & Body Works BBWI,
Best Buy BBY,
and Moderna's MRNA,
According to the UBS report, all companies are underperforming companies with fewer short sellers.
Stocks with little short interest, including Alphabet GOOGL,
Kinder Morgan KMI,
American Express AXP,
Eli Lilly LLY,
General Electric GE,
In contrast, it outperformed its peers with changes that also benefited long/short hedge funds.
According to the UBS report, the macroeconomic upturn has coincided with the emergence of more optimistic forecasts about the possibility of deeper and faster rate cuts.
“Regardless of how much long/short managers seek to reduce macro risk, there are simply more or less favorable environments for their process,” the UBS report said.
“YTD [year to date] The underperformance of heavily shorted stocks compared to lightly shorted stocks is a particularly favorable backdrop for hedge funds, and is likely to remain so as long as economic reporting remains strong. ”