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With the market rallying 17.4% in 1H 2019 to close near all-time highs, it has been an
extraordinarily challenging environment to be a short seller. Citron Capital, LP (“Fund”) had an
average exposure of 66% long and 82% short during 1H 2019.
For 1H 2019, the Fund generated a gross return of 36.6% and net return of 24.7% after fees and
expenses. Our top two winners on the short side were Ligand Pharmaceuticals (LGND) and
Jumia Technologies (JMIA) and on the long side were Revolve (RVLV) and Zillow (Z).
We were able to find opportunities in the IPO market betting against frauds (e.g., Jumia
Technologies) and betting on disruptive business models (e.g., Revolve). While Citron can’t
justify Beyond Meat’s (BYND) absurd valuation, we cannot ignore unfavorable technical
dynamics (e.g., tight float and high borrow cost). We were able to capitalize on trading around
our position in Beyond Meat, which was another top contributor to fund performance during
1H 2019.
Our biggest loser was Wayfair (W), which we remain short along with Chewy (CHWY). These
are two business models with valuations that do not reflect the challenges of achieving
profitability in the ecommerce market.
Going into the second half of 2019, on the long side we’re most excited about our position in
Invitae (NVTA). While Invitae was a contributor to fund performance during 1H 2019, we
continue to add to our position at current levels. One of Citron’s biggest mistakes in our 17-
year history was shorting Exact Sciences (EXAS). We underestimated the multiple premium that
the market was willing to award to differentiated diagnostic testing businesses. Citron is now
turning lemons into lemonade. We see Invitae as the clear winner within the mega trend of the
genetic testing market and expect the stock to trade to $100 in the next 24 months.
Unlike many fund managers who use their investor letters as an opportunity to opine on the
macro environment, the managers of Citron would like to reassure our investors that our focus
remains on finding and trading around asymmetric opportunities on both the long and short
side with processes and insights that have been developed over the past 20 years.