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Not for redistribution.

Bloomberg News Story

01/27/2021 07:10:28 [BN] Bloomberg News

Hedge Funds Fighting Short Raids Now Get Hit on Bullish Bets (1)

Their favorite shares have the longest decline since October

The retreat coincides with a surge in most-shorted companies

By Lu Wang

(Bloomberg) -- With a full-blown retail raid targeting their short books, many of the stocks hedge funds are
bullish on are suddenly in trouble, too. That has prompted the industry to cut their risk appetite at the fastest pace
in more than a year.

Square Inc., Roku Inc. and Peloton Interactive Inc., among the industry’s favorite stocks, each tumbled at least 3%
Tuesday while GameStop Corp. continued to lead a rally among companies with the highest short interest. Shares
of the video game retailer spiked more than 65% in late trading after Elon Musk tweeted about it.

The Goldman Sachs Hedge Industry VIP ETF (ticker GVIP), tracking hedge funds’ most popular stocks, fell for a
fourth straight day, the longest stretch since October. That coincided with a 15% rally in a basket of the most-
hated shares over the stretch.

In a market where bearish wagers are backfiring like never before, one way to mitigate career risk might be to sell
stocks that had previously been working -- even if that means parting with some beloved companies.

“The recent squeeze in heavily shorted stocks has been nothing short of extraordinary,” said Jonathan Krinsky, chief
market technician at Bay Crest Partners. “If shorts cause too much pain, there is usually some repercussion on the
other side as longs have to be sold to offset losses.”

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 This document is being provided for the exclusive use of ANDY WONG at ASPEX MANAGEMENT HK LIMITED. Not for redistribution.

Bloomberg News Story

Hedge funds are suffering as retail traders whipped up in chat rooms charge into heavily shorted names, fueling
squeezes in stocks from Bed Bath & Beyond Inc. to AMC Entertainment Holdings Inc. Fund managers have been
busy paring bearish bets, with hedge fund clients tracked by Goldman Sachs carrying out short covering at an
almost unprecedented pace during the past two weeks.

Read more

Short Sellers Crushed Like Never Before as Retail Army Charges

Before a Penny Stock Skyrocketed 451%, Trader-Chat Forums Lit Up

But the long sides of their books are starting to feel the pinch too. On Monday morning, when stocks with the
highest short interest soared as much as 11%, the GVIP fund tumbled almost 2%.

Such a squeeze not only hurts performance for hedge funds, it increases the potential size of a measure known as
daily value at risk, both of which would prompt money managers to cut back risk, according to Kevin Muir of the
MacroTourist blog.

Indeed, gross leverage, or a gauge of hedge fund risk appetite that takes into account long and short positions, on
Monday experienced the largest active reduction since August 2019, data from Goldman Sachs show.

“The real question is whether this selling starts a negative feedback loop,” Muir wrote Monday. “Even though it
might seem like the stock market bulls should be cheering the squeezes, their success might end up being the
trigger that brings about the general stock market correction many have been waiting for.”

(Updates with data on hedge funds cutting risk starting in first paragraph.)
Related ticker:
GVIP US (Goldman Sachs Hedge Industry VIP ETF)

--With assistance from Melissa Karsh.

To contact the reporter on this story:

Lu Wang in New York at lwang8@bloomberg.net

To contact the editors responsible for this story:

Jeremy Herron at jherron8@bloomberg.net
Chris Nagi, Anne Cronin

This report may not be modified or altered in any way. The BLOOMBERG PROFESSIONAL service and BLOOMBERG Data are owned and distributed locally by Bloomberg Finance LP ("BFLP") and its
subsidiaries in all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the ("BFLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg LP ("BLP"). BLP provides BFLP with
all the global marketing and operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the BLP Countries. BFLP, BLP and their
affiliates do not provide investment advice, and nothing herein shall constitute an offer of financial instruments by BFLP, BLP or their affiliates.

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