Meet the tiny Aussie fund swept up in Wall St’s meme stock frenzy

When Samuel Atkinson woke up last Wednesday to check the overnight action on Wall Street, he was shocked to find one of his firm’s riskiest stock picks had suddenly exploded in value.

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Savana Asset Management, which operates out of an old church in Sydney’s Surry Hills, was still fresh from launching its first exchange-traded fund on the ASX in November – an actively managed US small-cap ETF which uses algorithms to identify cheap stocks. Among Savana’s first stock picks was beleaguered US retailer Kohl’s Corporation, which had screened as a compelling takeover target after a slump in the share price. Little did the team that oversees $3.6 million in assets know that Kohl’s would soon become the face of Wall Street’s latest meme stock frenzy.

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Hedge funds had been increasingly targeting the US retailer after its recently appointed chief executive, Ashley Buchanan, was fired in May amid allegations that he directed business to a romantic partner. By last week, nearly half of Kohl’s shares were held by short sellers, which profit when a stock falls. Still, Savana’s algorithms had led the firm to double down on its long position – a contrarian bet that suddenly paid off last week when the retailer’s share price briefly doubled in New York overnight. The wild swings triggered a trading halt before the stock finished the session up 38 per cent.

“It was exciting news to wake up to,” said Atkinson, an associate director at Savana where he helps oversee the fund’s investments. “We went from a 64 per cent loss on the stock to now being in a profitable position – so it’s been an absolute roller coaster.”

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Savana, which claims to be one of the few Australian fund managers to own Kohl’s shares, got caught up in a co-ordinated short squeeze on Wall Street that turbocharged the rally. That’s when an army of retail traders on social media starts piling into a stock to force hedge funds into covering their short positions by buying back the shares and turbocharging the rally. The moves in Wall Street’s newest meme stock unleashed a flurry of similar short squeezes elsewhere as traders targeted other big brand names, including Krispy Kreme, GoPro and Opendoor. After the wild swings in Kohl’s share price, Savana is now sitting on a 5.3 per cent gain from when it first bought the shares, and remains undeterred by the frenzy on Wall Street and the army of traders that are speculating about the retailer’s valuation. It’s currently trading at around 11 times earnings.

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“There’s been some fairly contorted commentary that’s described the stock as trading at ridiculous valuations and is completely devoid of intrinsic value, but that’s not the case,” Atkinson said. “Kohl’s has very strong fundamentals.”

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Savana’s experience highlights the far-reaching effects of the mania that has gripped the world’s most important sharemarket, which continues to reset its record highs and push hungry traders into speculative pockets of the market. A Goldman Sachs basket of the most shorted stocks on Wall Street has rocketed more than 60 per cent since mid-April, when equities bottomed after US President Donald Trump announced reciprocal tariffs on most of America’s trading partners. That makes it one of the most violent short squeezes in the past 40 years, beaten only by the tech stock bubble which burst in 2000, and the 2020-21 period during the COVID-19 pandemic which preceded a 26 per cent plunge in stocks. The appeal of these short squeezes for day traders is to generate mega profits if they can exit the trade in time. But such rapid gains are often followed by brutal corrections – Kohl’s has tumbled nearly 20 per cent from last week’s peak.

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As of Thursday (Friday AEST), investors had lost $US2.5 billion ($3.8 billion) in July betting against the 50 US-listed stocks with the highest short interest, according to data from S3 Partners.

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“The size and speed of the current rally in heavily shorted stocks has been epic and certainly won’t last forever,” Bell Potter strategist Richard Coppleson warned clients on Tuesday.

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Fund managers are also treading cautiously. Hedge fund Minotaur Capital this week warned clients that it was operating in a market that “feels increasingly disconnected from fundamentals”.

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“We’re in the midst of the first meme-stock mania since the GameStop saga of early 2021,” wrote portfolio managers Thomas Rice and Armina Rosenberg. “In times like these, staying grounded is essential.”

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Bronte Capital’s John Hempton was one of the Sydney-based hedge funds to get caught up in last year’s meme stock frenzy that was driven by stock tipper Keith Gill, known on social media as Roaring Kitty. At the time, Hempton had a $2 million short position in AMC, an American cinema chain, that was getting smashed by an army of retailer investors that were trolling him on X. By the end of the week, AMC was up a bruising 25 per cent.

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By Alex Gluyas