Short-sellers have been circling Jupiter Fund Management following another turbulent quarter for the group in which it was unable to stymie redemptions.
The FTSE 250 fund house was the most shorted manager in the UK in October, with Blackrock and three other investors betting against its share price toward the end of the month. Over 3% or 15 million of the asset manager’s shares are currently being lent to short-sellers.
Blackrock initiated a short position of 2.29 million shares or 0.50% of shares out last Thursday, according to data from the FCA’s daily updated register.
Investors are required to disclose short positions of 0.50% and above to the regulator.
Blackrock would not confirm which of its funds had shorts on Jupiter.
The firm with the biggest short position on Jupiter is London-based alternative investment firm Melqart Asset Management. As of Tuesday its short position was roughly 4.12 million shares.
| Investors shorting Jupiter | Short position | Date shorted |
| Blackrock Investment Management (UK) | 0.50% | 25/10/2018 |
| GLG Partners | 0.67% | 25/10/2018 |
| Marshall Wace | 0.61% | 24/10/2018 |
| Melqart Asset Management | 0.90% | 30/10/2018 |
| Wellington Management | 0.51% | 27/06/2018 |
Source: FCA
Investors betting outflows will intensify
The spike in investors betting Jupiter’s share price will fall comes weeks after it revealed £833m of net outflows over the third quarter. So far this year investors have yanked £3.1bn from the fund group, which is considerably higher than the redemptions suffered by rival managers.
Numis senior analyst David McCann suspects the increased shorting activity is linked to persistent outflows from the group’s €6.6bn (£5.8bn) Dynamic Bond fund.
“I would imagine they are taking a view on the Dynamic Bond fund outflows continuing or getting worse,” McCann says.
As with the first and second quarters, Ariel Bezalel’s (pictured) Dynamic Bond fund remained the group’s Achilles’ heel. Jupiter did not disclose how much the Sicav vehicle lost in its Q3 results but stated that its fixed income strategy saw net outflows of £600m principally in continental Europe.
Ryan Hughes, head of active portfolios at AJ Bell, agrees investors are picking up on the fact that a lot of assets are coming out of the fixed income business. Hughes says these types of directional flows, like those plaguing the Dynamic Bond fund, can persist for a while.
“Clearly market participants are sensing there is a bit of a challenge going on at Jupiter.”
Investors short SJP and Hargreaves
But short-sellers were not eyeing Jupiter alone last month. Investors also bet against emerging markets specialist Ashmore, Hargreaves Lansdown and St James’s Place in October.
Hedge funds AQR Capital Management and GLG Partners took out 0.80% and 0.54% short positions on Hargreaves and SJP, while Ashmore was shorted by Lansdowne Partners (0.59%).
Both Hargreaves and SJP took a hit to net flows as volatility picked up in the third quarter though Hargreaves suffered a more severe 16% drop in flows.
Ashmore however delivered “surprising” inflows that beat consensus but emerging markets are still seen as a turn off for many investors.
Asset managers are geared to the stock market so typically underperform the index in times of volatility and outperform when markets rally, says Hughes.
“If you’re expecting market instability and potential market falls looking forward you would expect asset managers to react to a greater degree than the market.”
Geared play
Adrian Lowcock, head of personal finance at Willis Owen, agrees that the uptick in shorts out on fund groups and wealth managers is a “geared play” by investors looking to profit from falls in the market.
“There are two main reasons for doing it, either valuations are quite high and therefore they are priced for perfection or the company itself is viewed as vulnerable or weak and therefore could see more outflows or fund values fall further and faster than the market,” he says.
Lowcock thinks investors are shorting Hargreaves and SJP for the first reason as they have been “success stories for several years”.
“A weak market would take the shine off, but wouldn’t necessarily have a long term impact.”
He says the rationale for shorting fund managers is “more mixed” as it depends on the range they offer.
Shares in SJP and Hargreaves are still trading at historically high levels, though SJP’s shares are down 16% year-to-date.
Jupiter’s shares meanwhile have almost halved, falling from 624p to 333p so far this year.
On the day its Q3 results were unveiled analysts at JP Morgan Cazenove slashed its December 2019 target price from 440p to 410p.
Jupiter declined to comment.
