Hedge-Fund Short Sellers Missing in Action at Sohn Conference

(Bloomberg) -- Short sellers were thin on the ground at a gathering of hedge-fund managers in London on Thursday.

Nine out of the 10 stock recommendations at the Sohn conference were bullish bets on share prices -- even after an October market rout that wiped out many hedge funds’ gains for the entire year. Fund bosses predicted increases for companies as diverse as carmaker Ferrari NV and French nursing-home operator Korian SA.

The emphasis on bullish calls was not altogether surprising given that many of the participants at the one-day event have a long-only bias, meaning they don’t speculate against stocks. It could be a missed opportunity, though: the best calls from last year’s conference were shorts. They were few and far between then, too. Just three out of 15 recommendations from 2017 were short bets, and two of them would have made money.

Sohn London: 2017 Shorts Win as Bulls Crushed in Stocks Rout

The lack of short picks is encouraging the idea that years of quantitative easing and stock prices going one way -- up -- have addicted fund managers to taking long positions. Yet this risks making hedge funds look and perform more like cheaper active funds, which could exacerbate an investor exodus.

The only short idea at the 2018 Sohn event was also the most popular short in the FTSE All-Share Index, according to data compiled by IHS Markit.

It came from Kuvari Partners LLP investment chief Vikram Kumar, who recommended betting against construction company Kier Group Plc. Any declines would be on top of the 30 percent slide the U.K. company has already suffered this year, which puts it in the bottom 35 performers of the FTSE 250 index.

Here’s a list of the main stock calls at the conference:

  • Kier shares have 50% downside risk, Kuvari’s Kumar said
    • The company risks having to raise equity, its free cash-flow target looks “unachievable” and leverage is understated
    • Kier operates in a low-margin sector, Kumar said
    • A representative for Kier declined to comment when reached by phone
  • Ferrari shares have the potential to gain 60%, according to Dureka Carrasquillo, a senior portfolio manager at the Canada Pension Plan Investment Board
    • Company’s development pipeline is more aggressive than in the past
  • Korian’s growth is set to pick up, with its defensive business at an “inflection point,” according to Mubadala Capital’s Maxime Franzetti
  • Rolls-Royce has 300% upside on strong cash flows as air travel continues to grow, with the company having taken significant market share, Janus Henderson’s Luke Newman said
  • Smiths Group has 50% upside in a market that’s rife with overvaluation, said J O Hambro’s Rachel Reutter
  • Sports Direct got a positive mention from Schroder Investment Management’s Andy Brough, who said its click-and-collect model differentiates it from the likes of Boohoo and Asos
  • Paddy Power Betfair has more than 30% upside, UBS O’Connor’s Bernie Ahkong said

©2018 Bloomberg L.P.

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