Hedge Fund Sentiment Turns Sour On Market's Darlings, HazelTree Data Indicates

Hedge funds are raising eyebrows by taking a bearish stance on some of the hottest sectors, namely electric vehicles (EVs), luxe brands and AI tech.

What Happened: Insights from HazelTree, known for offering treasury services to the big institutional players, show that top hedge funds are prepping for potential declines, shorting 2023's market darlings.

Top Shorts In Focus: Names like EV giant Tesla Inc TSLA; luxury mogul Kering PPRUY, owner of Gucci; and chip powerhouse from Japan, Advantest Corp ATEYY, topped the list for being heavily shorted in their respective regions last month, according to Bloomberg.

How "Crowded" Is The Short Market? While many gauge investor pessimism by looking at short-selling percentages, HazelTree's approach gives a broader view.

The company tracks the sentiment across its client base, providing a more comprehensive picture. Bloomberg's coverage, leaning on HazelTree’s analytics, highlighted data from around 700 funds that represent about 12,000 global equities.

The term "crowdedness" might be a new one for retail investors, so let's get into it.

Essentially, it’s a scale from 1-99 developed by HazelTree to indicate just how many funds are shorting a stock. Ninety-nine represents the security that the highest percentage of funds are shorting.

If you’re wondering just how pessimistic the sentiment is for the likes of Tesla, Kering and Advantest — all three bagged a score of 99.

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Stocks In The Spotlight: Despite Tesla’s storied growth over the years, the sentiment seems to be shifting. With CEO Elon Musk recently flagging concerns over future profitability due to a "higher for longer" interest rate environment causing the company to lower its car prices, it’s clear that even the biggest players aren’t immune to market shifts.

In AI, Advantest recently missed the mark on its quarterly earnings. For luxury brands, European names such as Kering are feeling the heat, with signs pointing to its Gucci brand lagging behind competitors.

LVMH Moet Hennessy Louis Vuitton SA LVMUY, the luxury brand behind Louis Vuitton, Givenchy and others, also had a significant short focus in the EMEA region, Bloomberg's report said.

The Bigger Picture: While hedge fund attention to shorting stocks such as Tesla, Kering and Advantest are making rounds, the actual percentage of shares being out is still pretty low.

Around 2.6% of Tesla's float is being sold short, 0.9% for Kering and 8.7% for Advantest, Bloomberg said, citing Hazeltree's data.

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