Tesla, Moderna are among hedge funds' favorite stocks to short as the investment strategy rebounds

Published Tue, Aug 24 20213:55 PM EDTUpdated Tue, Aug 24 20214:09 PM EDT

Hedge funds' short books are making a comeback after the brutal meme stock rout earlier this year. Here's a look at their most popular short targets right now. The short side of the portfolio for hedge funds generated in July the best alpha since 2010, and now it's outperforming the long side of their strategies, according to Morgan Stanley prime brokerage data. The rebound came after a tough first quarter, when retail investors pushed a slew of heavily shorted stocks higher, including GameStop and AMC Entertainment and inflicted huge pain for short-selling hedge funds. Goldman Sachs put together a list of S & P 500 stocks with the highest total dollar value of short interest outstanding as an estimate of hedge fund short portfolio holdings. The basket excludes hedge funds' favorite long positions and stocks with more than 10% of float-adjusted shares held short to allow for sufficient liquidity for traders. Tesla tops the list of hedge funds' largest short positions per Goldman. One of the vocal Tesla bears was "Big Short" investor Michael Burry of Scion Asset Management. While it's unclear if Burry is shorting the electric car maker, he owned $730 million worth of put positions against Tesla by the end of June. Put options allow the owner the right to sell a specified amount of an underlying asset at a set price – known as the strike price – in the future. Put option holders make money when the asset's value falls below the strike price. Moderna is another popular short target by hedge funds. Professional speculators could be betting for a pullback after a massive rally this year on the distribution of its Covid-19 vaccine. Shares of Moderna have jumped about 277% in 2021. Earlier this month, the drug maker reported better-than-expected second-quarter earnings and revenue and said its coronavirus vaccine is 93% effective after six months . Hedge funds are also betting against insurance broker Aon. The company and Willis Towers Watson gave up on their merger last month to create a giant global insurance broker and consultancy after the Justice Department filed a lawsuit against the deal on antitrust concerns. Netflix, Home Depot , IBM and JPMorgan are also some of the hedge funds' biggest short bets.

A trader works on the trading floor at the New York Stock Exchange (NYSE) in New York, August 5, 2021.

Andrew Kelly | Reuters

Hedge funds' short books are making a comeback after the brutal meme stock rout earlier this year. Here's a look at their most popular short targets right now.