BAML is out with their quarterly hedge fund report. The note by Stephen Suttmeier, CFA, CMT of BAML discusses new observations and positions of hedge funds through March 31st 2013. Below is a summary and a short excerpt from the first point on hedge fund net exposure. UPDATED: Full report from BAML embedded below in scribd:
Hedge fund net exposure
Based on the quarterly 13F filings and estimated short positions of the equity holdings of 895 funds, BAML calculates that in 1Q13 hedge funds net exposure is back to the 2Q07 peak of 59%, while reducing cash holdings to the 2Q07 trough of 4.3%. Gross exposure rose to 160% or 180% if ETF positioning is considered.
Meanwhile, dollar notional hedge fund net exposure rose by 11% to $463bn notional in 1Q13 – setting a new record. The bullish positioning indicates that risk appetite is back to the peak set in 2007.
Moving on from hedge fund NET exposure… Gross exposure rose by 12% to $1280bn notional in 1Q13. Percentage-wise, gross exposure increased to about 160%. When including ETF positions the gross exposure increases to 180%.
Hedge fund equity ownership highest since 2Q08
Hedge funds owned 5.0% of the Russell 3000 float, second only to the 2Q08 peak of 5.1%. Large Cap weighting in hedge fund portfolios rose by 0.2% to 78.7%, below the 1Q10 peak of 80.3%. Hedge funds increased dollar exposure of cyclical sectors by 9.8% to a record high of $382bn in the first quarter of 2013, a 55 fold increase from the 1Q 2009 low of $6.8bn. Cyclical sectors accounted for 82% of hedge fund aggregate net exposure by the end of 1Q13, slightly lower than the record high of 83% in 4Q12.
ETFs rotate out of non-US equities, continue to sell metals
ETF ownership shifted from non-US equities to home construction (ITB), bills (BIL) and short term Treasuries notes (SHY). In addition, hedge funds continue to sell precious metals (PPLT, GDXJ and GLD). In aggregate, hedge funds are net short $61bn worth of ETFs in 1Q13 after adjusting for short biased ETFs – indicating that hedge funds are using ETFs as a hedge tool.
HFs overweighting consumers, reducing Financials & Tech
Hedge funds increased their weighting in five out of 10 sectors in 1Q13, led by Discretionary and Staples. Meanwhile, weights in Financials and Technology were reduced the most. 1Q13 saw a reduction of hedge fund net exposure of dollars in all Financial subsectors except for REITS. Discretionary, Tech and Financials remain the three most favored sectors by hedge funds.
Subsector shift from Commercial Banks to Food Products
Hedge funds most aggressively bought Food Products and Life Science Tools & Services, while selling commercial banks and Metals & Mining – both in net dollar notionals and as a percentage of change from 4Q12. Hedge funds net exposure short in terms of Metals & Mining in 1Q13 was short and remained net exposure short three other subsectors: Healthcare Technology, Leisure Equipment and Diversified Telecommunication.
Hedge Fund Generals outperformed in 1Q13
The Hedge Fund Generals index was up 15.4% in 1Q13; compared to an increase of 10.0% for the S&P 500. The strategy has outperformed the S&P 500 by 72bp per month and 217bp per quarter between September 2003 and March