* Nokia among top short targets ahead of recent unit sale
* Short squeeze was Europe's biggest since VW in 2008
* Blackberry, Alcatel among other shorted techs that may
* Short-only strategies down 14 pct in 2013- EDHEC-Risk
By Blaise Robinson and Simon Jessop
PARIS/LONDON, Sept 5 Hedge funds circling the
stock of vulnerable companies got an expensive wake-up call this
week with Nokia's dramatic exit from commercial
purgatory, prompting many to reassess their targets.
Funds that had borrowed Nokia stock to sell on, in a 'short'
bet it would fall further, have suffered a potential loss of up
to $843 million, Reuters calculations showed, as it jumped up to
49 percent after the once world-beating Finnish tech firm agreed
to sell its handset unit to Microsoft for $7.2 billion.
Device manufacturer Blackberry and telecom
equipment maker Alcatel-Lucent are also heavily
shorted, with 12.8 percent and 5.9 percent of their shares,
respectively, out on loan, a proxy for short-selling, data from
But with both potential targets if the tech sector
consolidates further, share price rises of 9 percent and 22
percent since the Nokia deal on Monday highlight the
uncomfortable position for those with a short position on either
And there are others. IT services firm Atos and
semiconductor specialist Infineon both have above
average short interest, at 4.8 percent and 4.5 percent,
respectively, while also joining investment bank Citi's list of
potential deal targets.
"The Nokia deal is like a wake-up call for some hedge fund
managers," said Christophe Jaubert, CIO hedge fund strategies at
Rothschild HDF Investment Solutions, in Paris.
"It's a healthy reminder that managers need to spread their
bets to minimise their risks, instead of taking one big short
The scale of Nokia's move higher meant that the rush by many
hedge funds to buy back the stock and exit their position -
known as a 'short squeeze' - was Europe's biggest since funds
were surprised by a 2008 stake-building in Volkwagen
by Porsche, which pushed VW up 400 percent.
COMING UP SHORT
The move is yet another nail in the coffin for a short-term
strategy that was already sharply underperforming this year.
According to research firm EDHEC-Risk, funds using a 'short'
strategy have on average lost 14 percent this year against a
gain of 15 percent for the Standard & Poor's 500 index.
"It's been a challenge to find good short ideas, partially
because of deals happening in the merger space," Rob Koyfman,
Senior Strategist at Lyxor Asset Managment, in New York, said.
The risk that companies are saved for strategic reasons,
either by a takeover or a buyout, has been rising as concerns
about the health of the economy ebb, interest rates start to
rise and companies look for acquisitions to fuel growth.
"Identifying takeover targets is more of an art than a
science. This is not something you can do by simply running
financial screening," he said.
"Shorting Blackberry might not be a good idea in that sense.
Even if the fundamentals are deteriorating, there's a risk of a
strategic move on the firm. It makes fund managers nervous."