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10 Biggest Hedge Fund Casualties of Reddit WallStreetBets’ Short Squeezes

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·12 min read
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In this article, we discuss the 10 biggest hedge fund casualties of Reddit WallStreetBets' short squeezes. If you want to skip our detailed analysis of these hedge funds, go directly to the 5 Biggest Hedge Fund Casualties of Reddit WallStreetBets' Short Squeezes.

Hedge funds have suffered billions in losses this year in a fierce stock market showdown with retail investors on internet platforms like Reddit and Twitter over the past six months. These battles have usually centered around stocks that the hedge funds attempted to short-sell, inviting the wrath of users on Reddit forums like WallStreetBets, mostly comprising young investors, who bought up stakes in these companies to drive up the share price, initiating a short squeeze and making handsome profits in the process.

Some of the firms involved in this saga include GameStop Corp. (NYSE: GME), AMC Entertainment Holdings, Inc. (NYSE: AMC), ContextLogic Inc. (NASDAQ: WISH), and Clover Health Investments, Corp. (NASDAQ: CLOV), among others. According to some media reports, hedge funds have suffered a total of $12 billion in losses in these short-selling schemes. Investment bank Goldman Sachs last year compiled an index of stocks that these retail investors favored. That index has doubled in value over the past few months.

In an analysis, released to clients earlier this month, the investment bank highlighted that the retail favorites index had beaten the overall market by three percentage points this month. The analysis also underlined that retail investor spending into equities was poised to rise to $400 billion this year, an increase of $50 billion from a previous estimate of $350 billion. Perhaps this is one reason why hedge funds have been actively monitoring the hype around certain companies on Reddit in order to better manage their risk profiles.

The battle, though, still looks to be far from over. According to Goldman Sachs, the retail investor boom in equities is just beginning. Hedge funds managers, like Andrew Left, who expected retail investors to jump ship and drive the price of shorted stocks down, have been left red-faced as the prices of these stocks — referred to as meme stocks — continues to soar higher. However, in addition to being active, these stocks have been some of the most volatile ones on the market, adding to the overall chaos in the market.

The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Biggest Hedge Fund Casualties of Reddit WallStreetBets' Short Squeezes
Biggest Hedge Fund Casualties of Reddit WallStreetBets' Short Squeezes

Luis Louro / shutterstock.com

With this context in mind, here is our list of the 10 biggest hedge fund casualties of Reddit WallStreetBets' short squeezes. These were ranked keeping in mind the overall losses, size of the hedge fund, and the market credence of the hedge fund manager. The hedge funds that suffered losses, either directly or indirectly, as a result of the short squeezes but did not shutter completely have also been included in this list.

Biggest Hedge Fund Casualties of Reddit WallStreetBets' Short Squeezes

10. Citron Capital

Andrew Left, the editor of investment newsletter Citron Research, is one of the most famous short-sellers on the market. His hedge fund was one of the biggest losers in the GameStop Corp. (NYSE: GME) short squeeze. Citron is placed tenth on our list of 10 biggest hedge fund casualties of Reddit WallStreetBets' short squeezes. Left took to video sharing website YouTube in January to assure investors in Citron Capital that he had made a mistake in predicting that GameStop Corp. (NYSE: GME) stock would lower in price.

Left clarified that Citron had managed to cover the short positions on GameStop Corp. (NYSE: GME) at a 100% loss, learning important lessons in the process. However, Left, in the video, said that he expected the stock of the video game retailer to return back to normal levels within a short span of time. This prediction has not aged well, as the stock is still trading at a high price, despite pulling back from record highs registered in January.

9. Maverick Capital

Maverick Capital is an investment firm run from Texas. It is placed ninth on our list of 10 biggest hedge fund casualties of Reddit WallStreetBets' short squeezes. The hedge fund is run by Lee Ainslie and manages over $10 billion in assets. Earlier this month, Financial Times reported that Maverick Capital was keeping track of the hype around certain stocks on Reddit forums in order to protect itself from short squeezes, lending credence to earlier reports that the hedge fund had suffered losses in the GameStop Corp. (NYSE: GME) saga at the turn of the year.

Lee Ainslie of Maverick Capital

Maverick Capital holds a large stake in Amazon.com, Inc. (NASDAQ: AMZN), the ecommerce retailer based in Washington. Out of the hedge funds being tracked by Insider Monkey, London-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc. (NASDAQ: AMZN) with 3.3 million shares worth more than $10.5 billion.

Just like GameStop Corp. (NYSE: GME), AMC Entertainment Holdings, Inc. (NYSE: AMC), ContextLogic Inc. (NASDAQ: WISH), and Clover Health Investments, Corp. (NASDAQ: CLOV), Amazon.com, Inc. (NASDAQ: AMZN) is one of the stocks to watch out for this year.

In its Q1 2021 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Amazon.com, Inc. (NASDAQ: AMZN) was one of them. Here is what the fund said:

“Amazon (AMZN): We sold our last remaining stake in Amazon this quarter. Amazon was our longest-running investment holding, after having originally purchasing it at the inception of Hayden in 2014, at a price of ~$317.

I gave some details of how Amazon has progressed over these past 6.5 years in last year’s Q2 2020 letter, which partners can find here (LINK). The company has executed amazingly well over this tenure, with revenues up ~3.3x and since our initial purchase, and reported operating income up ~30x over that period.

Generally, I believe there are three reasons to sell an investment: 1) we recognize our initial thesis is wrong (sell out as quick as possible), 2) we have a significantly higher returning opportunity to redeploy the capital into (sell-down to fund the new investment), or 3) the company is maturing and hitting the top part of it’s S-curve / business lifecycle, so the business has fewer places to reinvest its capital internally. As such, the future returns will likely be lower than the past. This investment thus becomes a “source of capital” in the future, as we fund earlier-stage investment opportunities..." (Click here to view the full text)

8. Citadel Investment Group

Citadel Investment Group is an investment management company registered in Chicago. It is ranked eighth on our list of 10 biggest hedge fund casualties of Reddit WallStreetBets' short squeezes. The hedge fund is run by billionaire Ken Griffin and has a portfolio value of over $400 billion, one of the biggest in the world. Although the fund was not directly impacted by the Reddit-backed short squeeze, it did help arrange close to $3 billion in capital for Melvin Capital that had been hit hard by the short squeeze.

Ken Griffin of Citadel Investment Group

One of the top holdings of Citadel Investment Group is Tesla, Inc. (NASDAQ: TSLA), the California-based electric vehicle maker. Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Tesla, Inc. (NASDAQ: TSLA) with 24.4 million shares worth more than $16.3 billion.

Just like GameStop Corp. (NYSE: GME), AMC Entertainment Holdings, Inc. (NYSE: AMC), ContextLogic Inc. (NASDAQ: WISH), and Clover Health Investments, Corp. (NASDAQ: CLOV), Tesla, Inc. (NASDAQ: TSLA) is one of the stocks to watch out for this year.

Here is what Baron Partners Fund has to say about Tesla, Inc. (NASDAQ: TSLA) in its Q1 2021 investor letter:

“Tesla, Inc. designs, manufactures, and sells fully electric vehicles, solar products, energy storage solutions, and battery cells. The stock fell during the quarter as a result of general market dynamics and a potential production slowdown due to parts shortages. A refreshed S/X and China Model Y ramp could also have a negative impact on margins in early 2021. We anticipate strong growth and improved margins driven by new production capacity, manufacturing efficiencies, localization of its manufacturing and supply chain, and maturation of Tesla’s full self-driving technology.”

7. Candlestick Capital Management

Candlestick Capital Management is a hedge fund headquartered in Connecticut. It is placed seventh on our list of 10 biggest hedge fund casualties of Reddit WallStreetBets' short squeezes. The fund is run by Jack Woodruff and manages more than $4 billion in assets, according to latest filings. The fund was a big gainer in 2020, gaining a handsome 26% over the pandemic period, but suffered low to midteen percentage losses in the Reddit-backed short squeeze earlier this year, per a report in business news publication The Wall Street Journal.

Candlestick Capital Management has invested heavily in Mastercard Incorporated (NYSE: MA), the New York-based payments processing firm. Out of the hedge funds being tracked by Insider Monkey, Virginia-based investment firm Akre Capital Management is a leading shareholder in Mastercard Incorporated (NYSE: MA) with 5.8 million shares worth more than $2 billion.

Just like GameStop Corp. (NYSE: GME), AMC Entertainment Holdings, Inc. (NYSE: AMC), ContextLogic Inc. (NASDAQ: WISH), and Clover Health Investments, Corp. (NASDAQ: CLOV), Mastercard Incorporated (NYSE: MA) is one of the stocks to watch out for this year.

In its Q4 2020 investor letter, Bretton Fund, an asset management firm, highlighted a few stocks and Mastercard Incorporated (NYSE: MA) was one of them. Here is what the fund said:

“While consumers resumed much of their spending by summer, what and how they used their Visas and Mastercards changed. For obvious reasons, people shifted to contactless payments—one of the Covid-era changes we think is permanent—and replaced travel purchases with online shopping and food delivery. Consumers spent more on their debit cards and less on their credit cards; Visa and Mastercard make more per transaction on the latter. They also make more on cross-border transactions that come mostly from international travel, which ground to a halt early in the pandemic. Visa’s and Mastercard’s earnings per share fell by 7% and 16%, respectively, compared to their usual mid-teens growth. We’re not too worried, and we think they’ll catch up nicely in the post-vaccine world. Visa’s stock returned 17.1% and Mastercard’s 20.2%.”

6. Point72 Asset Management

Point72 Asset Management is a Connecticut-based hedge fund. It is ranked sixth on our list of 10 biggest hedge fund casualties of Reddit WallStreetBets' short squeezes. The fund is managed by Steven Cohen and is one of the biggest in the US, managing more than $21 billion in assets at the end of March, according to latest filings. The New York Times reported in February that the fund lost 15% during the GameStop Corp. (NYSE: GME) short squeeze in January. The fund also helped finance a multi-billion dollar bailout for Melvin Capital this year.

Steven Cohen of Point72 Asset Management

One of the premier holdings of Point72 Asset Management is Baidu, Inc. (NASDAQ: BIDU), the Chinese technology company. At the end of the first quarter of 2021, 89 hedge funds in the database of Insider Monkey held stakes worth $6.5 billion in Baidu, Inc. (NASDAQ: BIDU), up from 51 in the preceding quarter worth $4.6 billion.

Just like GameStop Corp. (NYSE: GME), AMC Entertainment Holdings, Inc. (NYSE: AMC), ContextLogic Inc. (NASDAQ: WISH), and Clover Health Investments, Corp. (NASDAQ: CLOV), Baidu, Inc. (NASDAQ: BIDU) is one of the stocks to watch out for this year.

In its Q1 2021 investor letter, Horos Asset Management, an asset management firm, highlighted a few stocks and Baidu, Inc. (NASDAQ: BIDU) was one of them. Here is what the fund said:

“We have also fully exited our stake in Baidu, following their outstanding performance during the period and their lower relative upside potential compared to other investment alternatives, which we will discuss below.

The Chinese technology platform company Baidu has also been held in the portfolios managed by Alejandro, Miguel and myself for several years. During this period, we have seen very high volatility in its share price, which we have taken advantage of to make significant rebalancing moves in our position (in fact, we even sold our entire position once, when we thought the stock’s upside potential was exhausted). After several years of instability, market sentiment turned very positive, putting an end to the historical advertising problems in the healthcare sector, the divestments in O2O (Online-to-Offline) businesses that continued to weigh on the company’s margins, the IPO of part of the iQiyi streaming business (which hid Baidu’s underlying cash generation capacity) and the tough competition from other industry giants such as Tencent and Alibaba, as well as the entry of new players with disruptive business models (ByteDance). At the same time, the company’s recent commitment to electric vehicles contributed even more to this change of narrative. Baidu’s share price rose almost fourfold from the March 2020 lows to all-time highs and reached a valuation where the margin of safety, in our view, was too narrow.”

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Disclose. None. 10 Biggest Hedge Fund Casualties of Reddit WallStreetBets' Short Squeezes is originally published on Insider Monkey.