Markets with Madison: Meet a meme stock short-seller

An experienced Australian fund manager is betting against Australian listed companies being hyped on social media, to profit off their eventual valuation demise.

Schroders’ Australian Equity Long Short Fund spends up to 30 per cent of its client’s money betting against company valuations, predicting they will fall – it’s a strategy that’s seen its fund perform 14 per cent better than the Australian Stock Exchange benchmark.

Co-manager of the fund Rad David revealed on Markets with Madison that shorting companies classified as ‘meme stocks’ had helped its success.

“We do short low-quality companies that either have crazy valuations that aren’t supported by the fundamentals, that are low-quality and always prone to disappointment.”

David created an ASX meme stock performance index that tracked comments on Twitter and Facebook about Australian listed companies.

The index fell 75 per cent from its peak in 2021.

“It was a real craze, and it was driven by speculation,” he said.

One stock included in the index was the buy-now, pay-later company Zip Pay. Its share price peaked at A$12.35 a share in 2021, but had since fallen 95.6 per cent to be worth 54 Australian cents a share on March 28, 2023.

“Put your belts on, Zip is about to take off,” a social media thread said about the stock, according to David’s research.

One stock David previously shorted through the fund was a lithium technology start-up company called Novonix.

It hit an A$5 billion valuation at its peak while posting no profits, before falling 90 per cent, he said.

“Companies that have really extreme valuations, where no profits end up eventuating, get marked down, because of the mismatch,” David said.

Find out what else he has shorted in this Markets with Madison interview.

Get investment analysis and insights from the experts on Markets with Madison every Monday and Friday in the NZ Herald.

Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.