May 3, 2018 / 8:20 PM / 18 days ago

UPDATE 1-Short-sellers call out charm bracelet, water bottle makers at conference

(Adds details on fund manager picks)

By Svea Herbst-Bayliss

NEW YORK, May 3 (Reuters) - Hedge fund managers looking to profit from falling share prices took center stage at a New York conference on Thursday, zeroing in on makers of water bottles, charm bracelets and other consumer companies

Years of strong equity gains have battered so-called short-sellers - investors who sell borrowed stocks and hope to make a profit by buying them back for less later on - but recent market volatility has raised their hopes.

Shifting tastes, especially among millennials, have drawn some to target consumer goods companies in particular.

Pinnacle View Capital is betting against Danish jeweler Pandora because of lower charm bracelet sales and heavy management turnover, said portfolio manager Victoria Hart.

She expects the stock could drop 30 percent from its current price. The company did not respond to a request for comment.

Enrique Abeyta Ubillos of digital media company Project M Group highlighted the example of Anheuser-Busch InBev’s Budweiser as potentially challenged by craft brewers outsourcing everything from production to fulfillment.

Mark Roberts, whose Off Wall Street Consulting Group publishes roughly 20 short ideas a year, mentioned Helen of Troy Ltd, which makes PUR and Braun-branded household appliances and Hydro Flask stainless steel water bottles.

More broadly, Roberts described what he termed a “weakening of the brand” in which retailers are trying to compete with in-store brands at the expense of name-brand items.

SMALLER NAMES

Billed as the first conference to focus exclusively on shorting, the Kase Learning Short-Selling Conference drew more than one hundred managers and investors to hear industry icons like David Einhorn of Greenlight Capital and Carson Block of Muddy Waters say how they find ideas and proceed.

But the real lure, some attendees said, were the less well-known investors including Jonathan Tunick, who runs Vitalogy Capital Partners; Spruce Point Capital Management’s Ben Axler; Aristides Capital’s Chris Brown and Kerrisdale Capital’s Sahm Adrangi. At a private club in Midtown Manhattan, nearly two dozen investors, including a five women, shared ideas and tips. Einhorn took the stage but requested his comments remain off the record.

“It’s been rough sledding for years but that might change now,” said an investor in the audience who asked not to be named.

Presenters also mentioned what they saw as red flags at companies including communications satellite services provider Intelsat SA, which Jillian McIntyre of 221B said could tumble 50 percent because of its business model, cash needs and leverage. Intelsat declined to comment.

Short sellers have drawn attention with takedowns like Muddy Waters’ allegations of fraud at timber company Sino-Forest, which subsequently filed for bankruptcy in 2012.

But more recently some bets against high-flying names like Tesla Inc have backfired as markets continued to surge. . Mark Spiegel, who runs Stanphyl Capital Partners, again said Tesla’s stock will tumble to zero on a day the share price fell.

“After a nine-year bull market, (short selling) was like swimming upstream,” said conference organizer Whitney Tilson, who credits short-selling with saving his own hedge fund during the 2007-2009 financial crisis, before the event.

At the conference investors cautioned peers that shorting stocks often requires a good deal of patience.

Bets “can take a long time to work out,” Spruce Point’s Axler said, adding short-sellers need a thick skin for criticism and potential legal challenges.

Some encouraged focusing on flawed business models instead of waiting for accounting irregularities to pop up, and one investor warned the next big corporate fraud could be just around the corner.

“There will be another systemic fraud larger than (Bernie) Madoff,” said Tunick of Vitalogy Capital Partners, adding “so be ready.”

Last year dedicated short-sellers lost an average 10 percent as other hedge funds gained 6.6 percent, according to Hedge Fund Research data. The S&P 500 meanwhile gained 22 percent. (Reporting by Svea Herbst-Bayliss; Editing by Meredith Mazzillli)

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