The latest Citigroup Inc (NYSE:C) snapshot of hedge fund positioning around the world gives some insight into the way funds have been using their money in October. The report, which was authored by analyst Robert Crossley, shows that hedge funds are becoming more positive on the United States, but problems persist in the periphery of Europe.
The report is a somewhat positive sign that market expectations are healthy. The idea that the market has hit a top has been getting a lot of play in recent weeks, and it has helped to erode investor confidence. Problems persist in certain areas, and hedge fund investors have been known to be wrong in the past.
Hedge fund positioning
In the United States, hedge fund investors and investors from Japan have turned around their shorts on equities. Hedge funds saw the biggest change since the last report, which was published two months ago. They are now firmly long on U.S. equities, after being slightly short in the last report.
The position is not a consensus one, however. Investors in core European countries France and Germany as well as those in the U.K. remain Neutral on U.S. equities, though those from the rest of Asia have turned neutral from a short position in the last report.
Positioning in Japan also became more bullish in the period. Investors from the country itself remained slightly long on the market, but those from the the U.K. went positive on the country. Hedge funds are now firmly long on the country’s equities, a positive indication for the future.
In core European countries, positioning looked strong and there was increasing positivity from hedge fund investors as well as Central Bank investors in the period. Both of those groups changed their position to one firmly long on Germany and France, while investors from the United Kingdom went slightly long on the area.
The situation was not quite as positive in peripheral European countries. Both Italy and Spain saw some investors turn negative on their equity markets. Hedge funds turned away from Italian stocks in the period, while investors from Europe’s core and from the Unite Kingdom turned away from both countries.
Investors are clearly getting more negative on the prospects at Europe’s periphery, and it may indicate that there are problems on the way. There may also be vulnerability, according to the report, in Core Europe. Investors are very long on France according to the research. That might indicate overvaluation of the market.
Taper talk conclusions
According to Crossley, the results of the research suggest that investors believe Federal Reserve tapering will come later rather than sooner. Investors turned negative on the U.S. market when taper talk began, and they’re returning now. The installation of Janet Yellen as Chief at the Federal Reserve is the biggest piece of evidence in favor of the theory.
Whenever the Federal Reserve does decide to turn off the flow of easy money, it will work to deflate the stock market. Investors are aware of that, but as long as there’s money to be made, they seem positive on the United States.