Hedge funds hit after abrupt market pivot on vaccine

Several US and UK hedge funds were stung this week in an intense shake-up under the market’s surface triggered by a significant development in the fight against coronavirus.

Monday’s news that a Covid-19 vaccine being developed by Pfizer and Germany’s BioNTech was more than 90 per cent effective sent markets soaring. But it also prompted an abrupt switch out of sectors that have prospered during the pandemic, such as technology, and into beaten-down stocks such as real estate and airlines — and triggered an earthquake in some popular investment “factors” such as value and momentum.

“Everything about 2020 has been unprecedented, but the magnitude [of these moves] was exceptional,” said Yin Luo, vice-chairman and head of quantitative strategy at Wolfe Research.

That whiplashed a number of hedge funds. A Goldman Sachs index of the stocks which are most heavily bet against — such as shopping mall operator Simon Property Group — spiked more than 2 per cent at one point on Monday, and has remained buoyant. Meanwhile, the equivalent index for the most popular “long” stock bets, or wagers on rising prices — including shares such as Pinterest and Salesforce — has declined, despite the overall market rally.

One of the most crowded short positions was Unibail-Rodamco-Westfield, Europe’s biggest shopping centre owner, which according to data group Breakout Point was the most shorted stocks across the EU and UK, based on disclosed…

Read more