Market volatility is spooking investors again -- this time, away from the hedge fund industry. London's Man Group, the world's largest listed hedge fund manager, saw a net investor outflow of $2.6 billion in the third quarter.
This number comes as a bit of a surprise. According to Reuters, analysts at Singer Capital Markets only expected net outflows of $200 million from Man Group for the third quarter. This hemorrhage follows an otherwise impressive year for Man Group, which saw $4.4 billion in net investment for the first half of 2011
The latest quarter marks the worst for Man Group since shortly following the collapse of Lehman Brothers, and other hedge funds are feeling the pain, too. "According to Hedge Fund Research's HFRX index, the average hedge fund is down 7.78 percent this year." (via Reuters)
Investor sentiment has clearly been shaken by the continuing troubles in the eurozone and renewed fears of a double-dip recession, but with extreme sentiment can come opportunity.
Contrarian investors often look for such opportunities. They search for instances where investor sentiment becomes so extreme that they believe a turn-around is imminent. Therefore, contrarians often invest against the crowd.
If you're looking for contrarian ideas, the following list might interest you.
To create this list, we started with a universe of about 200 stocks being dumped by institutional investors.
From this list we identified a list of stocks that have seen a significant increase in short selling over the last month. In other words, short sellers increased their bets that these companies will see losses.
And to arrive at the final list below, we collected price data, and identified the names that have seen the longest losing streaks over the last 30 days.
Institutional investors and short-sellers think these companies are in trouble, and judging by the losing streaks, they might be right. But the question has to be asked: How long before most of the bad news is priced in?
If you're a contrarian, this extreme pessimism, combined with ultra-bearish price action, should raise a flag.
List sorted by relative size of institutional selling. (Click here to access free, interactive tools to analyze these ideas.)
1. Smith Micro Software (Nasdaq: SMSI ) : Develops and markets wireless communications software products and services. Institutional investors have changed holdings by -3.5M shares over the last quarter, which represents about 11.82% of the company's float of 29.60M shares. Shares shorted have increased from 2.63M to 3.92M over the last month, an increase which represents about 4.36% of the company's float of 29.60M shares. The stock's average daily alpha vs. the S&P500 index stands at -0.78% (measured close to close, over the last month). During this period, the longest losing streak lasted 7 days (i.e. the stock's daily returns underperformed the S&P 500 for 7 consecutive days). The longest winning streak lasted 2 days (i.e., a win streak / losing streak ratio of 0.29).
2. LDK Solar (NYSE: LDK ) : Engages in the design, development, manufacture, and marketing of photovoltaic (PV) products; and development of power plant projects. Institutional investors have changed holdings by -6.1M shares over the last quarter, which represents about 10.98% of the company's float of 55.54M shares. Shares shorted have increased from 33.62M to 37.28M over the last month, an increase which represents about 6.59% of the company's float of 55.54M shares. The stock's average daily alpha vs. the S&P500 index stands at -2.43% (measured close to close, over the last month). During this period, the longest losing streak lasted 8 days (i.e. the stock's daily returns underperformed the S&P 500 for 8 consecutive days). The longest winning streak lasted 3 days (i.e., a win streak / losing streak ratio of 0.38).
3. MGIC Investment (NYSE: MTG ) : MGIC Investment Corporation, through its subsidiary, Mortgage Guaranty Insurance Corporation, provides private mortgage insurance to the home mortgage lending industry in the United States. Institutional investors have changed holdings by -15.0M shares over the last quarter, which represents about 8.14% of the company's float of 184.26M shares. Shares shorted have increased from 25.66M to 27.76M over the last month, an increase which represents about 1.14% of the company's float of 184.26M shares. The stock's average daily alpha vs. the S&P500 index stands at -0.93% (measured close to close, over the last month). During this period, the longest losing streak lasted 7 days (i.e. the stock's daily returns underperformed the S&P 500 for 7 consecutive days). The longest winning streak lasted 2 days (i.e., a win streak / losing streak ratio of 0.29).
4. E-Commerce China Dangdang (Nasdaq: DANG ) : Operates as a business-to-consumer e-commerce company in the People's Republic of China. Institutional investors have changed holdings by -2.2M shares over the last quarter, which represents about 6.85% of the company's float of 32.13M shares. Shares shorted have increased from 8.11M to 8.66M over the last month, an increase which represents about 1.71% of the company's float of 32.13M shares. The stock's average daily alpha vs. the S&P500 index stands at -1.51% (measured close to close, over the last month). During this period, the longest losing streak lasted 7 days (i.e. the stock's daily returns underperformed the S&P 500 for 7 consecutive days). The longest winning streak lasted 2 days (i.e., a win streak / losing streak ratio of 0.29).
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Eben Esterhuizen and Alexander Crawford do not own any of the shares mentioned above. Institutional data sourced from Fidelity, short data and price data sourced from Yahoo! Finance.
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