NASDAQ mini bust

The SMH blog offers up some evidence of a NASDAQ mini-bust today with internet 2.0 stocks taking a pounding since March highs (but retaining huge P/Es):

• Yelp! – 32.9% – x142.96
• Tesla -16.7% – x132.81
• Facebook – 21.2% – x44.93
• Twitter -20.8% – x1960.90
• Netflix -25.9% – x72.43
• Zynga -27.5% – x381.82
• LinkedIn -20.6% – x103.71
• Apple -2.4% – x12.42
• Google -10.7% – x20.43
• Microsoft +5.8% – x14.74
• Yahoo -13.6% – x21.28
• Amazon -14.7% – x79.99
• Cisco +6.4% – x11.43
• Intel +6.8% – x13.86
• Ebay -8.9% – x18.09

According to Goldman (via ZH) the driver behind the nascent rout is a hedge fund blood bath:

“The recent momentum reversal has focused on high growth stocks, many of which are constituents in our hedge fund basket”…”high expected sales growth and firms with high EV/sales multiples. Our 50-stock sector-neutral portfolio of firms with the highest expected sales growth surged 3.4% during the first 60 days of 2014 (250 bp above S&P 500), before retreating by 2.4% during March and trailing S&P 500 by 320 bp (Bloomberg: <GSTHREVG>). Stocks on both lists were social media, internet, and biotechnology firms that had led the market during the prior six months. These high growth/high multiple stocks feature prominently on our list of “stocks that matter most” to hedge fund performance (<GSTHHVIP>). Having outperformed by 230 bp through February, our VIP basket dropped 2% in March while S&P 500 climbed 0.8%. Long positions trail by 98 bp YTD.”

What appears to have been a nice little hedgie bubble is bursting. Could it spread to a wider market rout? Possible, but for that to happen the losses will have to be sufficient to cause a margin call on broader hedge funds, forcing them to sell more stock. From the WSJ, the losses appear to focused on several tech-heavy funds:

Andor Capital Management LLC, once one of the world’s biggest technology-focused hedge funds, plunged 18% last month. The $15 billion Discovery Capital Management LLC lost 9.3% in its flagship fund…. Both funds are in the red for 2014, according to people familiar with the firms.

Many of the biggest hedge-fund falls stemmed from wagers on highflying technology stocks that shot up last year and in the first two months of 2014. The last week of March was one of the worst weeks for stock hedge-funds’ returns compared with the S&P 500 since 2001, according to Goldman Sachs Group Inc., which tracks the stocks important to hedge funds.

Andor, based in Rye Brook, N.Y., saw its fortunes reverse after sticking to a strategy that drove the firm to a 35% gain in 2013. Some of the firm’s biggest long-term positions, including Facebook and Google Inc., fell steeply last month.

Founded by former Pequot Capital Management co-head Daniel Benton, Andor manages about $1 billion. Mr. Benton previously managed more than $6 billion in an earlier incarnation of the firm.Andor was down 5% in the first quarter overall, according to a person familiar with the firm.

The $9 billion Coatue Management LLC, started by Philippe Laffont, a veteran of Julian Robertson’s Tiger Management, also was hurt by the reversal in technology stocks. Coatue’s flagship fund lost 8.7% in March and is down 7.4% for the year. A spokesman declined to comment.

Another Tiger alumnus, Robert Citrone of Discovery, described the month’s carnage as a “perfect storm.” Wagers involving stocks accounted for 85% of the firm’s March losses, the people said.

This NASDAQ bubble has been more narrow than the last one so I would not jump to the conclusion that this is the beginning of a broader bust. But it’s certainly worth watching, Long Term Capital Management was only one fund, after all.