Ultra-bear hedge fund manager suffers huge losses as stocks rally
London-based Horseman Capital, going up against central banks, finds the going heavy
One of the few hedge fund managers still betting that stocks are too high has suffered heavy losses in his fund this year, as a rally fuelled by looser monetary policy makes life increasingly tough for bears.
London-based Horseman Capital, which manages more than $800m in assets, suffered a 12 per cent loss in its Global fund during April, according to figures seen by the Financial Times.
That takes its loss this year to more than 25 per cent. The fund is run by Russell Clark, a media-shy Australian who took over the fund from star stockpicker John Horseman almost a decade ago.
Mr Clark’s losses highlight the conundrum facing traders whose fundamental analysis shows markets are overvalued but who realise that negative bets would stand in the face of a rally driven by years of aggressive monetary easing by central banks. During the first three months of this year, for example, dovish moves by the Federal Reserve after a choppy end to 2018 contributed to the best quarterly performance for the S&P 500 in a decade.
“Markets are making things very tricky,” wrote Mr Clark in a letter sent to investors last month, seen by the FT. “The question that hangs over a fund like mine, and the entire hedge fund industry, is that if there are no obvious downsides to central bank loose monetary policy, what is the point of short selling?”
Mr Clark was not immediately available for comment, and a spokeswoman for Horseman declined to comment further.
Mr Clark, who has previously described quantitative easing as a “disastrous policy”, has been running a huge bet against stocks — whereby his bets on falling prices are more than double his wagers on rising prices. Such positioning is extraordinary by the standards of the hedge fund industry, leaving him as one of a dwindling band of ultra-bears. Almost all managers skew towards positive bets on prices, for fear of being hurt by a stock market rally that has now run — with only a few interruptions — for a decade.
Mr Clark is known among investors for his colourful letters, which can often reference his favourite films. In one, sent to investors in 2016, he depicted then-Federal Reserve chair Janet Yellen as Star Wars hero Luke Skywalker, confronting Darth Vader, who represented deflation.
His fund made double-digit gains in 2014 and 2015 before losing around 24 per cent in 2016.
“The degree of dovishness that central banks have exhibited has surprised me, as has the willingness of markets to look beyond weak earnings in markets that look very oversupplied, particularly in semiconductors,” Mr Clark wrote in his April letter.
However, there is little sign yet of Mr Clark capitulating and taking off his negative bets.
“Given that almost all assets have rallied with the expectation of central bank easing, it would suggest the risks of still being short are diminished,” he wrote.