Although in the United States, hedge funds are not required to disclose their short positions, European rules demand that beyond a certain threshold short positions are to be declared mandatorily. These disclosures have shed light on Bridgewater’s short strategy.
Bridgewater’s filings reveal that the hedge fund has bet $22 billion against some of Europe’s biggest companies.
Although there was no data to show whether Bridgewater holds more European stocks than it “shorts” overall, an investor in Pure Alpha Major Markets, a hedge fund disclosed that Bridgewater’s position, which on February 6 was slightly net “long”, has now significantly been reduced.
Bridgewater, with $160 billion under management bets on macro-economic events, declined to comment on its trading strategy.
Unlike in the U.S. where hedge funds are not required to disclose their short positions, rules in the European Union, brought in as a result of the 2008 financial crisis, require that hedge funds publish their short positions above a certain threshold.
Short selling is the core strategy among hedge fund investors and is driven by expectations that once share prices fall, they can be then picked up at a lower price and sold at a profit.
Significantly, last month, Ray Dalio Bridgewater’s billionaire founder stated that the end of the a buoyant global investment market has arrived.
“It just takes a little change in interest rates to have a bear market,” said Dalio at the World Economic Forum, while adding that the late part of the cycle may still have quite a way to run. However, earlier this week, in a Linkedin post he wrote, “Recent spurts in stimulations, growth, and wage numbers signaled that the cycle is a bit ahead of where I thought it was.”
European Filings Data
Bridgewater’s European filings reveal that the hedge fund has bet against a wide range of sectors – from Unilever, Total, a French oil group, to Siemens, Intesa, an Italian bank and Deutsche Bank.
The hedge fund’s short position emerged in a piecemeal fashion. Naturally, it would be safe to assume that it would have built up its trades in advance of those announcements.
Not known for picking individual stocks, Bridgewater position is typically a view of the wider economy, said James Helliwell, chief investment strategist and director of the Lex van Dam Trading Academy.
“Whilst the extent to which it may be an outright short bet is uncertain, I suspect that it was seen as a relatively cheap hedge against existing global equity exposure.”
According to a London-based equity sales trader at a large U.S. bank, Bridgewater’s short bets could just be a bet on fund outflows with an increase in volatility; this could explain why there are fewer Bridgewater shorts on the UK market, UK stocks are very under-owned.
The hedge fund’s short position show that it has taken short positions worth $4.5 billion in France, $7.3 billion in Germany and $1.7 billion in Italy.
With stock markets on the wobble around the world midst concerns that central banks are paring back their support having flushed their respective economies with cash, Bridgewater has cut back on shorts in Spain, Netherlands and Ireland while increasing them in Italy and in Germany.
Bridgewater’s cautious stance is also mirrored in the stance taken by Dublin-based BG Master Fund, which last week disclosed it had taken a 0.4% short position against Germany’s Commerzbank and London-based Marshall Wace, and has made similar bets across Europe.