Hedge funds short the Japanese Yen

The latest Hedge Fund Monitor from Bank of America (BAML) analysts has just hit the press. The report which discusses hedge fund positioning has some surprising data, and some less surprising data. As expected, Hedge funds continue to short the Japanese Yen. The position has became especially popular after the Prime Minister announced his intention to weaken the currency. Over the past week large hedge funds partially covered Japanese Yen futures to $9.1bn from 9.8bn notional last week. Readings are neutral. A report issued earlier this week from BAML came to a similar conclusion regarding the Japanese Yen. The earlier report stated that only 9% of money managers had bullish views regarding the Japanese Yen, while none had  a ‘very bullish’ opinion. Going long the Yen could be the biggest contrarian trade ever!

Other key findings from the latest report regarding hedge funds:

Market Neutral funds aggressively sold market exposure to 11% net short, the lowest since August 2009. Long/Short exposure remains well below 35-40% benchmark at 19%.
• Large speculators bought the S&P 500 (.INX) and gasoline into a crowded long.
• Gold moves out of a crowded short position and Platinum moved out of crowded long position.
The investable hedge fund composite up 0.25% in 1st week of Feb.
The investable hedge fund composite index was up 0.25% for the first week of February, compared to a price return of 0.75% for the S&P 500 (S&P Indices: .INX). Convertible Arbitrage performed the best, up 1.29%. Marcos performed the worst and was down 0.09% for the same period.

Examining Hedge Fund positioning by major strategies

BAML models indicate that Market Neutral hedge funds aggressively sold market exposure to 11% from 5% net short. Equity Long/Short sold market exposure to 19% from 23% net long, well below the 35-40% benchmark. Macros aggressively bought the S&P 500 (S&P Indices: .INX), bought the NASDAQ-100 (INDEXNASDAQ:NDX), commodities & 10-year Treasuries, and added to their shorts in USD futures. In addition, they sold EM exposure to a net short and added to their EAFE shorts.

Significant HF moves across asset classes based on CFTC data Equities. Large specs continued to buy equities – including the S&P 500, NASDAQ-100 (INDEXNASDAQ:NDX)  and Russell 2000. S&P 500 re-entered a crowded long.
Agriculture: Large funds bought soybean & corn, but doubled their shorts in wheat.
Metals: Large funds bought metals across the board, including gold, silver, copper, platinum & palladium. Gold and Platinum moved out of a crowded position.
Palladium remains in a crowded long.
Energy: Large hedge funds sold crude oil, bought heating oil & gasoline, and added to their shorts in natural gas. Crude remains in a crowded long; gasoline moved into a crowded long.
Forex: Large hedge funds bought Euro, sold USD, and partially covered the Japanese Yen.
Interest Rates. Large hedge funds bought 10-yr, sold 2-yr Ts and continued to add to their shorts in the 30-yr Ts.