(Harvest) Our June 2015 piece listed SunEdison ( SUNE ) and Micron ( MU ) among the top ten stocks driving hedge fund risk and alpha. In the semiconductor sector, they were virtually the sole drivers. In addition, since mid-2014 semiconductor sector alpha for hedge funds has been sharply negative. Extreme semiconductor sector crowding and threat of liquidation were ominous and actionable. Investors armed with capable analytics could have avoided the bulk of their losses (by liquidating), or profited (by shorting); allocators could have asked undifferentiated managers probing questions.
This situation is not unique – liquidations devastated crowded bets across several sectors in 2015. For example, our July analysis highlighted the liquidation of crowded energy stocks. These lessons for investors and allocators apply across sectors and market cycles.
