BAML is out with their latest hedge fund monitor. The latest data as detailed in the report by Stephen Suttmeier, CFA, CMT shows that once again hedge funds trailed the S&P 500 in May. Additionally, funds appear to be back in risk on mode. Hedge funds have added to yen shorts following the volatile trading in Japanese markets. However, macro funds have the most exposure to emerging markets since October 2011. This could be a return to the theme of ’emerging markets leading the recovery’, however, that seems unlikely due to fears over a slowing China.  Macro funds also bought other ‘risky assets’ even though they are net short US equities (but bought dollars and treasuries). The data is a bit confusing although BAML notes the reading is volatile).

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The investable HF composite up 0.94% month-to-date

The investable hedge fund composite index was up 0.94% month-to-date as of May 29, compared to a price return of 3.18% for the S&P 500 index. Convertible Arbitrage and Event Driven performed the best, up 3.54% and 2.09%, respectively. Macro performed the worst and was down 0.75% – this is not a surprise given their recent net short positions in US equities.

Examining Hedge Fund positioning by major strategies

BAML models indicate that Market Neutral funds continued to reduce market exposure to 6% net short from 6% net long. Equity Long/Short maintained market exposure at 32% net long, just below the 35-40% benchmark level. Macros bought risk assets including the S&P 500, NASDAQ 100 and commodities to a net long last week. They also bought the US Dollar Index and T-notes to a net long. Meanwhile, Macros bought EM exposure to the highest since October 2011, while maintaining their net long positions in EAFE.

Maco-funds 2

Additionally, Macro hedge funds bought risk assets including the S&P 500, NASDAQ 100 and commodities to a net long last week. They also bought the US Dollar Index and T-notes to a net long. In addition, they reduced their large cap preference.


Significant HF moves across asset classes based on CFTC data: Yen and Euro data

Large speculators increased their Euro shorts to $10.9bn from $10.4bn notional last week. Positioning remains in a crowded short.

Large speculators added to their Yen shorts, increasing their positioning to – $12.2bn from -$11.6bn notional. Positioning in the Yen is at the edge of being classified as a crowded short.

The Aussie is likely now the hottest short among hedge funds, even surpassing the Yen.

Equities. Large specs bought the S&P 500, NASDAQ 100 and Russell 2000. NASDAQ and S&P 500 are in a crowded long.

Agriculture. Large specs bought soybean and corn, and reduced their shorts in wheat. Wheat moved out of a crowded short.

Metals. Large specs sold gold, silver & platinum, but were flat in palladium & copper. Gold and Silver remain in a buy zone.

Energy. Large specs sold crude oil & gasoline, while partially covering their shorts in heating oil & natural gas. WTI crude oil remains in a crowded long; heating oil remains a crowded short.

Interest Rates. Large specs sold Treasuries across the board – they are net short in 30-year, 10-yr and 2-yr. Readings are neutral.