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Money managers under the microscope

VW drops as hedge funds move in

August 19, 2009

Volkswagen ordinary shares are down today after yesterday’s report of increased short positions.

rtr26v0yStock out on loan, a good indication of shorting, has doubled over the past month to 2 pct of total issuance, according to figures from Dataexplorers.

When the freefloat is only roughly 10 pct, then this is a significant position.

It was only in October that hedge funds shorting VW ords were caught in the mother of all short squeezes, when Porsche said it had effective control of 74.1 pct of VW, leaving less than 6 percent tradeable in the market and hedge funds scrambling to cover their positions.

VW ords quadrupled, VW briefly became the biggest company in the world by market cap, and managers were looking at what was described at the time as the biggest loss in hedge fund history, although in reality some of the losses may have been borne elsewhere.

It’s a brave trade to be taken on again. But as hedge funds have shown, they are often the ones to take the bets others simply won’t comtemplate.

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