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Politics analysts: Hedge funds are still feeling the aftereffects of GameStop

05:35  25 february  2021
05:35  25 february  2021 Source:   finanzen.net

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GameStop short sellers are still not surrendering despite nearly billion in losses this month. Short-selling hedge funds have suffered a mark-to-market loss of .75 billion year to date in the brick-and-mortar video game retailer, including a nearly billion loss on Friday as the stock kept ripping higher, according to data from S3 Partners. Still , short sellers mostly are holding onto their bearish positions or they are being replaced by new hedge funds willing to bet against the stock.

The short squeeze – a term used to describe the funds ’ rush to buy back into a rising stock and cover their losses – has brought some of the US’ top hedge funds to the brink of bankruptcy. Citron Research, a fund that shorted GameStop , says it made a With Wall Street in panic mode, trading in these volatile stocks was halted almost immediately after the opening bell rang at the Nasdaq in New York City on Thursday. Amid calls for regulation from industry spokespeople, trading app Robinhood – a favorite of the amateur traders – banned the purchase of several stocks, including $GME and $AMC.

Even though the run on GameStop shares was around a month ago, the effects for hedge funds are still clearly noticeable.

DANIEL ROLAND/AFP/Getty Images © Provided by Finanz.net DANIEL ROLAND / AFP / Getty Images

• Hedge funds are targeted by small investors

• High losses from short positions weigh on funds

• Nevertheless, more positive capital inflow expected in 2021

The GameStop saga is in the hedge funds still in the bones. Even a month after numerous Reddit users agreed to buy the massively shortened GameStop share via the WallStreetBets subforum, the consequences for the hedge funds affected are still tangible. What happened? Due to the skyrocketing purchases of GameStop shares in a very short time, numerous hedge funds were forced to liquidate their shorts on the shares and buy back the shares at a much higher price. This in turn fueled the price of the ailing computer games retailer even more, so that it ultimately gained 400 percent within just one week. In the meantime, the turmoil surrounding the game retailer has subsided somewhat and the price has now come back far from its record high of 483 US dollars.

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The GameStop frenzy on Wall Street has investors, and much of the internet, enraptured — not unlike a good horror movie. Everyone knows doom is just around the corner for some key players; a lucky few will emerge stronger; and the monster might be subdued but will ultimately come back for a sequel.

GameStop (GME) rallied hard in the late afternoon trading session and is moving higher in after -hours. Shares were halted for volatility twice in the last hour of trading on Wednesday. RobinHood CEO Vlad Tenev took part in the hearing. In his testimony to congress he denied any collusion with hedge funds to disable buying of GameStop shares in order to drive the stock price lower. The brokerage firm restricted trading on the stock on January 28. That day the stock began a downward spiral.

Losses through short positions force hedge funds to give up long positions that are doing well.

For the hedge funds involved, the concerted action was clearly a disaster. As data from Goldman Sachs show, the funds bought and sold more shares in the week, which was marked by sharp price fluctuations in GameStop shares, than in more than ten years. In order to offset the massive losses in the short position business, the hedge funds were forced to liquidate many of their long positions that were doing well.

This also had a bad impact on hedge fund performance in January and February. As CNBC reports on an analysis by the Royal Bank of Canada , the 20 most popular long positions of hedge funds since the beginning of the year have lagged the broad US index S&P 500 . The bank found this out by analyzing 330 hedge funds.

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The GameStop position is now worth just million, Sun said.“I think I’m going to hold. Even if I lose money on the GME stock, I still believe this is a paradigm shift,” Sun said in an interview with Bloomberg Television. “In the past we all followed the advice from the financial analysts , and these days people are going to make their own decisions.” GameStop soared almost eightfold in the last week of January as retail investors spurred on by Reddit forums and Discord chats piled into the stock, causing pain for professional hedge funds who had shorted the video game retailer’s shares.

Few large funds that own shares in GameStop have a big enough position in the company to sway their overall performance. The Fidelity Intrinsic Opportunities fund , for instance, owns 9.75% of GameStop 's outstanding shares, according to Lipper data. After the closing bell today, GameStop ’s market value was .5 billion or about the same value as the New York Giants, the Dallas Cowboys, and the New England Patriots, the three most valuable National Football League teams, combined.

rotation is an additional burden.

is an additional burden because the large funds were targeted by small investors at a difficult time anyway. Even before the GameStop disaster, the tech titles so popular with hedge funds - according to GS, have included Amazon , Microsoft , Facebook , Alphabet and Alibaba for ten consecutive quarters - were already increasing come under pressure and would have ushered in a rotation in cyclical values, which were boosted by the hope of an economic recovery. The downward trend in hedge funds was also reinforced by the combination of a high degree of leverage and concentration, as CNBC Goldman Sachs reports. Hedge funds have already started 2021 with a record level of net and gross exposure, which of course is also associated with a high degree of risk.

Hedge Funds Still Popular

Anyone who thinks the funds will lose popularity this year, however, is wrong, according to British bank Barclays . In the course of last year, they had already recorded 30 billion US dollars in net capital outflows in the wake of the corona pandemic, as Bloomberg reported with reference to the bank. While investors mainly withdrew money from hedge funds in 2020 in order to top up their reserves during the crisis, they are now keen to reinvest the money, as Barclays found in a survey of 240 investors who deposited a total of 725 billion US dollars in hedge funds had.

For this reason, Barclays expects $ 10 to 30 billion to flow into hedge funds in 2021, which in turn would mean an annual positive capital inflow for the industry for the first time since 2017. Finanzen.net editorial team

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