Asset AllocationMarch 26, 2020

Bridgewater Scales Back European Shorts After Cashing In

Firm nets $4 billion in shorts, settles on singular stock strategy with Commerce Bancshares.

Reported by Steffan Navedo-Perez

Art by Nigel Buchanan

With the market swinging back and forth at rates that sent the VIX rising to its highest level in nearly a decade, hedge fund managers are keeping busy to capitalize on this rare opportunity for oversized profits while also being careful with their shorting strategies as some believe the worst may be behind us.

Ray Dalio’s $160 billion Bridgewater recently took a step back from its European shorting strategy after netting an estimated €4 billion ($4.38 billion) from the recent downturn, data analytics firm Breakout Point stated, noting that the fund holds more than 70 total distinct short holdings across the region.

“This week (ending March 14), Bridgewater disclosed big shorts in 43 European firms, mainly betting against major companies in France, Germany, Netherlands, Spain, and Italy,” Breakout Point said. The company estimates Bridgewater’s European shorts amount to €14 billion.

“These big European shorts resulted in big profits for Bridgewater,” Breakout Point said. “The major European index that we use as a proxy for profit estimates of these big shorts was down as much as 29% since close on Friday, March 6, prior to appearance of these negative bets.”

BBVA, Amadeus IT Group, CRH, Banco Santander, and Old Mutual were among the European companies on which Bridgewater scaled back its shorting efforts. Breakout Point reports that almost all the world’s largest hedge fund EU short positions are above 0.5% short interest.

Dalio recently went on the record to estimate that US corporations will lose approximately $4 trillion in aggregate due to the disruptive effects to the economy caused by COVID-19. The fund manager told CNBC that he and his staff were “kicking themselves” after their flagship fund declined nearly 20% after the initial shockwaves caused by the virus.

“What happened was it didn’t come from the usual places, it came from not the usual ways that downturns come,” he said.

Bridgewater is also finding consensus among its hedge fund peers in identifying opportunities in singular stocks that hold promise to return profits while running through the crisis. The fund, alongside Winton Capital Management, AQR Capital Management, Citadel Investment Group, and Holocene Advisors, piled into Commerce Bancshares, Inc. equity with bullish positions.

Over 37 new short positions were identified from the world’s largest hedge funds after the market downturn on March 10, Breakout Point reported, worth more than €10.5 billion.

Bridgewater incorporated a $1.6 million allocation to the Commerce Bancshares in its portfolio, driving the bullishness around the equity stake a bit higher.