Hedge funds make more than $1bn betting against travel stocks
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Hedge funds made profits of more than $1bn (£760m) from betting against travel companies in the year to July.
They also have $2.98bn in short positions outstanding in the industry, analysis by Reuters of regulatory filings and investment bank stock lending data showed.
The coronavirus pandemic has inflicted huge losses and share price falls on airlines, hotels and cruise ship companies as lockdowns, travel bans and quarantines disrupted summer holiday plans for millions across the world.
Europe’s travel and tourism share index has fallen 30 per cent so far this year, and today the world’s largest tourism firm TUI posted second-quarter losses of €1.1bn (£990m).
Big hedge funds such as Citadel, Sandbar Asset Management and Marshall Wace homed in on the tourism industry to take short positions, filings show.
The hedge funds declined to comment.
Calculations by data provider Ortex Analytics showed short sellers earned €853.6m in the first seven months of the year, up from €174.1m over the same period in 2019 from shorting tourism related stocks.
Hedge funds profit when they borrow a stock from an institutional investor and sell it back when the price falls, pocketing the difference, a practice known as short-selling.
Airline Deutsche Lufthansa proved one of the most profitable, making short-sellers more than €150.3m in profit over the period, according to the Ortex data.
Other heavily shorted stocks were French hotel company Accor, TUI and cruise line Carnival, based on Ortex data.
Some hedge funds ramped up short positions during strict lockdowns between March and May, before easing them as Europe seemed to become successful at reducing infections. But fresh localised outbreaks and new lockdowns induced them to renew the shorts.
Sandbar, for example, steadily upped its Deutsche Lufthansa short position to 0.7 per cent between April and July, then lowered it to 0.57 per cent on 2 July. It then increased it again from 24 July, filings showed.
Travel and tourism companies currently have $2.978bn shorts currently outstanding against them, up $200m in the past month, Ortex data shows.
The stocks have staged a modest rally since early August, but that has largely attracted more short-sellers, Peter Hillerberg, co-founder of Ortex, said.
“This isn’t the end of the story; already in recent days we’ve seen new positions open as investors seek to take advantage of higher share prices.”