Has Bridgewater’s big European short been squeezed?
The €10bn bet against European stocks is no more
Bridgewater’s big short on European stocks is no more. Well, almost.
In June we reported that the $150bn-in assets firm had been building a chunky short position in Europe. At its peak it totalled 33 disclosed short positions worth more than €10bn in aggregate, according to data group Breakout Point, across a range of companies in countries including France, Germany and Spain.
However, as of Wednesday all but one of these positions had been reduced below the 0.5 per cent disclosure threshold, with only Banco Santander at 0.59 per cent remaining.
Quite how investors should interpret this latest move is unclear (and Bridgewater declined to comment to FT Alphaville).
For starters, the shorts had been held at just above the disclosure threshold. It is unclear if the positions have now been taken off completely or simply reduced to just below the threshold.
Also uncertain is the extent to which these positions form part of a larger trade with different legs. Deducing trading strategies and investment theses from patchy public data is often a fool’s errand. However, given the stocks that were shorted are all components of the Euro Stoxx 50, the firm appears to be replicating the index – at least in part – potentially as a way of taking a particular position and very possibly hedged in some form.
But as Breakout Point highlights, this is the third iteration of this huge short position and has ended during a short squeeze in stock markets. The Euro Stoxx 50 has rallied almost 9 per cent since June, when Bridgewater’s position appears to have been built. That indicates that they lost money on the trades and were maybe forced into paring back the shorts.
The firm, founded by Ray Dalio and now led by Nir Bar Dea and Mark Bertolini, is having a strong year, helped by bets that the Fed and the market were behind the curve on inflation. It has been negative on a range of assets this year including US equities.
Given the world’s biggest hedge fund firm sees still trading opportunities from the Fed tightening monetary policy into a weakening economy, according to a person familiar with the firm’s positions, this is unlikely to be an overly bullish move by Bridgewater.