Sydney-based Savana Asset Management experienced a surprising windfall after its investment in US retailer Kohl’s Corporation became the target of a Wall Street meme stock frenzy. Savana operates out of Surry Hills and recently launched its first exchange-traded fund on the ASX in November, an actively managed US small-cap ETF, which uses algorithms to identify cheap stocks. The firm, which manages $3.6 million in assets, saw Kohl’s share price briefly double overnight in New York after hedge funds targeted the retailer.
The firm’s algorithms had led it to double down on its long position, a contrarian bet that paid off when the retailer’s share price surged. The surge triggered a trading halt before the stock finished the session up 38 per cent. According to associate director Samuel Atkinson, Savana went from a 64 per cent loss on the stock to a profitable position. Savana claims to be one of the few Australian fund managers to own Kohl’s shares and got caught up in a coordinated short squeeze on Wall Street that turbocharged the rally.
The surge in Kohl’s share price unleashed a flurry of similar short squeezes elsewhere, targeting other big brand names, including Krispy Kreme, GoPro, and Opendoor. Despite the volatility, Savana remains confident in Kohl’s fundamentals, currently trading at around 11 times earnings. Atkinson noted that commentary describing the stock as trading at ridiculous valuations is completely devoid of intrinsic value and is not the case, due to the company’s strong fundamentals.
Savana’s experience highlights the far-reaching effects of the mania gripping the US sharemarket, pushing traders into speculative pockets. A Goldman Sachs basket of the most shorted stocks on Wall Street has surged more than 60 per cent since mid-April, marking one of the most violent short squeezes in the past 40 years. However, fund managers are treading cautiously, with some warning of a market increasingly disconnected from fundamentals.
