Hedge funds were up 0.13% in 2Q’13 (essentially flat), underperforming the S&P 500 (.INX)‘s price return of 2.36%. Historically hedge funds tend to underperform in 2Q and 4Q according to BAML technical strategist, MacNeil Curry, CFA, CMT. Since 1995, hedge funds returned an average of 2.17% for 2Q, compared to 2.52% for the S&P 500 according to BAML’s latest weekly hedge fund monitor. Hedge funds also tend to underperform in 4Q with an average quarterly return of 2.10% vs. 4.93%, as shown in the chart below.

hedge funds

More details from the hedge fund monitor

Both Market Neutral and Macros have positive exposure to the US market, while Long/Short bought market exposure in line with benchmark level.

Large speculators continued to slash their longs in Gold, positioning is approaching the 2005 trough. In addition, they sold Corn to a contrarian buy zone, while adding to their wheat shorts back into a crowded short zone.

Hedge Funds up merely 0.13% in 2Q’13

The global diversified Hedge Fund Index was up merely 0.13% for the 2nd quarter of 2013, underperforming the S&P 500 index’s price return of 2.36% for the same quarter. Equity Market Neutral performed the best after Short biased for June, up 0.13% and 0.97%, respectively. Managed Futures performed the worst, falling 3.41% for June.

Examining hedge fund positioning by major strategies

BAML models indicate that Market Neutral funds increased market exposure to 14% net long from 11% net long. Equity Long/Short also raised market exposure to 37% net long from 28%; returning to their 35-40% benchmark level. Macro funds increased their long exposures to the S&P 500, NASDAQ 100 index and commodities, while continuing to reduce their exposure to 10-yr Treasuries and the US Dollar index from a crowded long. Overseas, they reduced EM longs and partially covered their shorts in the EAFE markets.

Significant HF moves across asset classes, based on CFTC data

Equities. Large specs doubled their net long in Russell 2000 and were essentially flat in the S&P 500 & NASDAQ 100. S&P 500 remains in a crowded long.

Agriculture. Large specs reduced soybean longs, aggressively reduced corn longs into the contrarian buy zone and added to wheat shorts. Wheat moved back into a crowded short.

Metals. Large specs sold gold, bought silver, partially covered copper shorts, and were flat in platinum & palladium. Gold and silver remain in the buy zone.

Energy. Large specs bought crude oil, partially covered natural gas & heating oil, and were essentially flat in gasoline. WTI crude oil remains in a crowded long; heating oil remains a crowded short.

FX. Large specs sold Euros, bought the US $ Index, and added to their Yen shorts. Positioning is neutral.

Interest Rates. Large specs bought 2-year Treasuries, partially covered 30-year Treasury shorts, and sold 10-year Treasuries. Readings are neutral.