Sometimes the old-fashioned methods work best and that proved true this week in the high-stakes world of hedge fund trading. Computer-driven hedge funds lost 8 million pounds ($11.4 million) on Tuesday from their long-standing short positions in AA, betting the shares would fall in value. In contrast, many hedge funds managed by traders had already banked their profits from AA and bailed out - before a costly jump in the share price following the company's results on Tuesday.
Hedge fund Parvus, which is AA's third-biggest shareholder according to Thomson Reuters Eikon and not computer-driven, also made money - 11.7 million pounds from a long position. Shares in the British roadside recovery group and insurer had fallen sharply following a profit warning in February but jumped 17.4 percent after their results. "A credible recovery is taking shape," said Sandy Chen, analyst at Cenkos, which has a buy rating on the stock.
In a short trade, the hedge fund borrows the stock to sell on, on the belief that it will be able to buy shares back later at a cheaper price before returning it to its original holder. Six hedge funds had outstanding shorts in AA above 0.5 percent in AA, the level above which firms are required to disclose their holdings, the most recent filings with Britain's Financial Conduct Authority (FCA), from April 16, showed.
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