Equity hedge funds reduced net leverage and exposure in the last month as volatility spiked and equities sold off broadly. According to JPMorgan’s Prime Brokerage report in hedge fund trends, net exposure declined by -5.6 percent in last month, down from 0.78 to 0.74, whereas net leverage was down by 4.92 percent from 0.66 to 0.63.

JPM Prime Brokerage

Equity book was net shorted in August

The report says that it was second time in the last six months that the JPM prime brokerage portfolio was net shorted in the month. Most short exposure was added through ETFs, whereas equity exposure was flat. The most shorted ETFs were in the fixed income category, iShares iBoxx $ High Yid Corp Bond (ETF) (NYSEARCA:HYG)and iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSEARCA:TLT) were the most active new shorts. On the other hand, iShares MSCI Emerging Markets Indx (ETF) (NYSEARCA:EEM), iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) and SPDR S&P Oil & Gas Explore & Prod. (ETF) (NYSEARCA:XOP) saw the most covering of shorts.

Net short activity

The report also notes that demand for Perrigo Company (NYSE:PRGO)’s borrow remained moderately high after it signed an agreement to buy Elan Corporation, plc (NYSE:ELN), whereas demand for Community Health Systems (NYSE:CYH)’s borrow, after it acquired Health Management Associates Inc (NYSE:HMA), remained light.

Hedge funds actively shorting Intel, Newmont Mining bonds

The JPM Prime Brokerage report notes that while hedge funds actively covered fixed income shorts in several corporate names, few names stand out including, Intel Corporation (NASDAQ:INTC), Lam Research Corporation (NASDAQ:LRCX), Newmont Mining Corp (NYSE:NEM) and International Game Technology (NYSE:IGT). where interest in new shorts in convertible bonds remains high.

Despite of the increased short exposure in the last month, more and more hedge funds are looking to offer long-only products, notes the trend report. In the past weeks, we have seen announcements from big and successful hedge funds like Tiger Global that they are launching a long-only fund. We have also seen other hedge funds namely, Coatue Management and Hound Partners planning long-only products.