Passport Shifts Bets Against Stocks as Trading Volumes Decline
For John Burbank’s Passport Capital LLC, shorting individual stocks has just become too hard.
The $3.9 billion hedge-fund firm, which rose 220% in 2007 by wagering on a bust in subprime mortgages, reached the conclusion after losing money in June on some of its bets, it said in a second-quarter letter to clients.
“There is no shame in acknowledging that this is an especially difficult market to make money on shorts even if you feel you have strong skill,” the San Francisco-based firm wrote.
For Passport, a contrarian investor, the answer isn’t giving up on betting against market declines. Instead, it expects to make fewer concentrated short bets, focusing on easy to trade securities and put options.
One reason for the dramatic increase is diminishing market liquidity. Starting in May, Standard & Poor’s 500 Index trading is down more than 20% relative to the year-to-date average, Passport wrote.
Even with an expected reduction in its long wagers, the potential for equities to “melt up into year-end” can’t be ruled out, the firm said. A market decline could mean an opportunity for aggressive buying, according to the letter.
“I’m very bullish about U.S. companies, many different sectors, but I’m very bearish about liquidity,” Burbank said in the TV interview. “It’s a strange environment.”
Source: garp
