BAML is out with their latest hedge fund report. Last week we reported how the hedge funds have lagged on the S&P 500 (INDEXSP:.INX), but their performance is still highly correlated to the index. The latest report highlights how hedge funds are inclining towards a net long strategy in equities of S&P 500 (INDEXSP:.INX), commodities in energy, metals, and the agriculture sector and US treasuries.

Till  Oct 17, the composite index was up 0.19 percent. On the S&P index, performance was down by 2.26 percent. The best performers of the month were funds that invested in Long/Short equity (+1.11 percent), while the worst was CTA Advisor (-1.43 percent). CTA has been the worst performing strategy since the August report.

Hedge Funds by Strategies

Market Neutral funds sold market exposure to flat from 4 percent net long. The market exposure, size, and quality are positioned at neutral, while inflationary expectations are positive.

Market Neutral funds Exposure

L/S equity based funds’ exposure was 22 percent net long, which is again below historical averages. The inflationary expectations are now negative, trend is towards high quality, and the tilt is towards large caps. These are major changes from our previous report, when exposure was towards low quality and inflationary expectations were positive.

The Macro funds, are selling S&P 500 (INDEXSP:.INX), NASDAQ-100 (INDEXNASDAQ:NDX), 10 yr treasuries, commodities, covered their shorts in USD and EM, and are long on EAFE. In contrast to L/S funds, Macros are moving towards small caps.

Hedge Funds by Asset Classes


Large hedge funds sold NASDAQ-100 (INDEXNASDAQ:NDX) and bought into S&P 500 (by -42 percent) and Russell 2000. Readings for NASDAQ 100 and Russell 2000 are neutral, while S&P is crowded in the net long, which BAML’s analysis sees as a risk in the event of a market correction.


Large specs sold commodities like soybeans and wheat. The trend in Corn was slightly towards buying. Readings for each remain in the crowded net long, or within the edge.


Large spec hedge funds sold, gold and silver. Readings on copper, platinum, and palladium were flat. Gold exited crowded long, while Platinum is staying there.


Hedge funds bought heating oil and sold crude oil, which was previously bought in August. Readings for both are in the crowded long.


JPY was sold while USD and Euro was covered. The trend of covering shorts in Euro has been consistent since August. Readings for Euro are now out of the crowded short.

Large hedge funds net short Euro

Fixed Income Futures

Hedge funds bought 10 year and 30 year treasury notes.