AMWatch

Swedish hedge fund is happy with stocks blowing up

Short sellers are getting paid as investors are losing their tolerance for failure.

"The environment for shorting has improved a lot this year and last year," said Per Johansson, chief investment officer at Stockholm-based Bodenholm Capital AB. "There are more stocks  that blow up when they have problem."

Bodenholm, which started in 2015, manages a long-short equity fund focusing on European stocks with about 35 long positions and 20 shorts. It has historically been market neutral, returning 7 percent a year on average since start.

The return so far this year through May is 5.4 percent. Among the stocks it’s shorting, or betting against, is medical equipment maker Ambu, trench-coat maker Burberry Group Plc, pen manufacturer Societe Bic SA and laboratory tester Eurofins Scientific SE.

It has a team of analysts dedicated to finding companies to short and uses forensic accounting to spot candidates.

"The market reacts very negatively when bad results come," said Johansson, who oversees about USD 1bn. "The market is starting to question companies’ accounting, such as General Electric. When such big companies have problems you also start looking more at accounting in smaller companies."

On the long side, Bodenholm holds Adevinta ASA, Essity AB and Puma SE. It seeks to invest in spinoffs that unlock value and is currently eyeballing Volkswagen’s planned listing of Traton SE.

And while stock markets have continued to rally, signs of excessive risk appetite have Johansson preparing for downside. "I’m worried because everyone is very positive,” he said. "Then you have to be very focused on what you own and also have a good number of shorts in your book that can deliver. If the market is standing still you can get return from both longs and
shorts."

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