Some hedge funds stand to profit as the rally that followed the election of Donald Trump as U.S. president fades. A number of hedge-fund managers have grown concerned that central bank stimulus has pushed stock prices too high, and that prices remain elevated despite a recent correction. That leaves stocks vulnerable to political risks in Europe, such as Brexit or elections across Europe, or rising U.S. interest rates.
“Financial assets are in a bubble that has been inflated by central banks,” wrote Tim Bond and Dipankar Shewaram, fund managers at London-based Odey Asset Management.
Their fund has large bets on falling European and U.K. stocks, with a particularly large position on a selloff in North America, according to the letter. The fund’s bet against North American stocks is twice as big as the bet against U.K. stocks. The managers are also betting on falling government bond prices. Mr. Shewaram told the Journal the fund had been positioned for both falling stock and bond prices since late last year.
“Each episode of ignoring bubbles has ended badly, with investors taking large losses and the economy in recession,” the managers wrote.
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