A Morgan Stanley mutual fund that bet on GameStop posted the best performance of any peers in January, showing how some Wall Street companies have managed to capitalize on the retail surge to their advantage.
The Morgan Stanley Institutional Inception fund, now at $ 1.5 billion, rose more than 30% in January on a total return basis, boosted by a 1,625% gain on its holdings of GameStop shares. This left it at the top of Morningstar’s rankings for U.S. equity funds.
Its strong performance stands in stark contrast to that of several other fund managers who were deceived by the surge in GameStop shares, sparked by a community of day traders who flocked to Reddit’s r /.WallStreetBets discussion forum. The hedge fund Capital Melvin, for example, recorded a 53% drop in January, prompting emergency investment from Point72 Asset Management and Citadel.
The Morgan Stanley fund, managed by Dennis Lynch, first disclosed 346,943 Gamestop shares last September, around the time it was revealed that Ryan Cohen, co-founder of online store Chewy, had also bought the game retailer.
The shares had a market value of just over $ 3.5 million at the time and the fund had just over $ 400 million in total assets, according to Morningstar. The fund’s GameStop stake rose to over $ 112 million at the end of January, contributing to a more than 100% return for the fund since September.
Morgan Stanley Investment Management declined to comment on its positions and whether it had reduced the size of its position in GameStop. The fund’s net asset value rose about 2% this week to Tuesday’s close even as GameStop shares plunged 72%, according to FactSet data.
The fund aims to seek out small companies with high growth potential and has made big bets on some beneficiaries of the pandemic, propelling it to a total return of around 150% in 2020. It has placed bets on the clothing store online Stitch Fix, software publisher The fast, online retailer Overstock.com, whose shares are all up more than 20% this year.
Talk on an online conference hosted by Goldman Sachs Last year, Mr Lynch said the pandemic had accelerated existing trends such as the growth of e-commerce.
“The volatility that we saw during the period of March, April and May was just incredible,” he said. “We’ve been through things like this before and what it can do is dramatically change the opportunity in a short window.”
One of the largest disclosed holdings of GameStop shares is in Fidelity’s Series Intrinsic Opportunities fund, which held nearly 10% of the outstanding shares in October, according to regulatory documents. Those shares, worth $ 71 million at the time, were said to have been worth more than $ 2 billion at the end of January.
However, the fund’s recent performance suggests that Fidelity sold at least some of the shares before the Gamestop rally intensified: the fund returned just 3.9% in January.
Gamestop alone would have contributed to a gain of more than 15% of NAV, according to FT’s analysis of October deposits, while other holdings had not had large enough moves to offset those gains. .
Fidelity said it does not discuss individual positions. “To protect the shareholders of our funds, we do not disclose the intention of any potential buy or sell decision,” a spokesperson said.
In one blog post On Fidelity’s website this week, chief investment officer Tom Stevenson warned of the speculative frenzy that led to the GameStop share price soaring, describing it as a “dangerous beast.”
“Getting rich slowly by studying the fundamentals, being well diversified, saving regularly, and avoiding the siren call of Internet bulletin boards sounds boring,” he wrote.
“Compared to the wave of your anti-Wall Street flag on the Reddit barricade, it probably is. But there is nothing more annoying than not being able to retire because what sounded too good to be true in fact was.