Quant juggernaut AQR is putting a €1.3 billion short bet on Germany as hedge funds seize on the DAX's very bad year

  • AQR, a quant-driven hedge fund, has built up short positions in Deutsche Bank, Bayer and ThyssenKrupp. Marshall Wace and Merian Global also have also shorted German stocks.
  • Germany’s DAX Index has underperformed the broader European benchmark this year, hurt by trade-war fears, Deutsche Bank’s woes, and government uncertainty

AQR Capital, a quant-driven hedge fund, is betting about €1.3 billion ($US1.5 billion) on a decline in German stocks, joining other short sellers in swirling the index for returns after a brutal year for the country’s equities.

AQR, which has about $US226 billion in assets under management, added a 0.5%, or €130 million, short position in automotive manufacturer Continental last week, according to data firm Breakout Point. The positions are in addition to the fund’s 2.58% short position on Deutsche Bank, valued at about €435 million, along with bearish bets on pharmaceutical company Bayer, semiconductor firm Infineon, and the industrial giant ThyssenKrupp.

The DAX Index is underperforming its broader European benchmark for the year, down about 17% versus a 13% drop in the Euro Stoxx 50. A whole host of factors has been hurting German companies lately – the US-China trade war has been hammering German automakers; Deutsche Bank has been clobbered week after week with terrible news; and uncertainty about the future of the German government isn’t helping. For the powerhouse of Europe, things aren’t looking good.

“We have not seen so many DAX big shorts by a hedge fund” since the first quarter, when it said Bridgewater built up short trades on the index, Breakout Point said.


Read more: Germany’s economy is getting hammered by the rest of the world’s problems

German regulators require disclosure of short positions when they reach 0.5% of the target company’s stock.

AQR has the following short positions in German stocks, according to Breakout Point:

  • AQR’s short in Deutsche Bank 2.58% (about €435 million)
  • AQR’s short in Bayer 0.7% (about €420 million)
  • AQR’s short in Infineon 1.22% (about €255 million)
  • AQR’s short in Continental 0.5% (about €130 million)
  • AQR’s short in ThyssenKrupp 0.89% (about €85 million)
  • Total € in AQR’s big DAX shorts: about €1.325 million

AQR, based in Greenwich, Connecticut, could not immediately be reached for comment.

AQR is not alone in betting against German stocks. Marshall Wace reported a 1.46% short in Deutsche Bank, valued at about €245 million, and a 1.4% short in ThyssenKrupp at about €135 million. Hedge fund Merian Global Investors, formerly called Old Mutual, reported a 0.9% short in HeidelbergCement (about €95 million) and a 0.5% short in the stock exchange operator Deutsche Boerse, about €105 million.

AQR’s bet on Bayer comes as the German company faces thousands of lawsuits over a suspected cancer link to the Roundup weedkiller, made by Bayer’s Monsanto unit.

“Our estimate is that AQR is up about €80 million on their Bayer short since mid October,” Breakout Point said.

Data on Monday showed Germany’s trade surplus narrowed in October, with imports growing faster than exports. Andreas Scheuerle, economist at DekaBank, told Reuters: “2018 is a lost year for German exporters.”

The decision by AQR and Marshall Wace to short Deutsche Bank is perhaps not a surprise. The bank’s stock has been getting clobbered by bad news week after week – with links to the Danske Bank scandal, police raids on its headquarters for alleged ties to money laundering, and suspicious transactions that may lead to even more fines.

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