European Short Observer November 2013

During the third quarter of 2013, rising tides continued to lift all boats and were particularly disappoint­ing for managers looking for short alpha plays in Europe. Compared to an equivalent short on S&P 350 Europe, managers’ stocks as measured by NSP compounded underperformance throughout the quarter as crowded trades moved against them, further widening the gap. Managers built up their short positions after the June sell-off, sensing opportunity for the US Fed to taper quantitative easing and thus exert pressure on global asset prices. But as the markets resumed their rally in September, managers decreased short positions in aggregate, bringing total short exposure in Europe markedly lower from its peak.