Macro/managed futures (CTA) funds have had much higher levels of net exposure than their long/short counterparts over the last few years, dropping below them only during the US debt ceiling fight in 2011 and the Euro Crisis in 2012, but it has fallen sharply in recent weeks and is now approaching negative net exposure.

“Macro/CTA funds have continued to trim exposure and are now almost neutral across developed markets. At the same time Long/Short funds maintained exposure and looking back at the longer history, are close to fully invested,” writes Credit Suisse analyst Jon Kinderlerer.

Net Exposure

Macro/CTA have higher variance than long/short

It’s not surprising that macro/CTA funds have higher variance than long/short funds since they follow a directional strategy, but it does show that many fund managers are far more bearish on the economy than analysts and the current run of stock prices might have you believe. The long/short ratio did move down slightly, reaching 54% across all regions and 17.6% in the US, which is close to the levels at the beginning of the year.

Macro/CTA exposure levels became shorter across the board, with a major shift in Taiwan, going from the top to well below the bottom quartile over last year’s range and the smallest change in the Eurozone periphery, which is the only area where macro/CTA exposure is still above the past year median levels. The US crossed to a net short position while Eurozone core and Japan fell below 20% net exposure.

Net Exposure

Macro/CTA underperform, long/short beat the market in January

Managed futures was the worst performing strategy last month falling 3.4%, while macro strategies fell 1.1%, convertible arbitrage was up 2.1%, and fixed income arbitrage was up 1%. Long/short equity funds fell 8 basis points in January, just a fraction of the decline most equity markets saw over the same period. The Credit Suisse hedge fund index was down 29 basis points overall even though 8 out of the 13 covered strategies came out positive.

So far this month, Kinderlerer sees US long funds underperforming the market but short funds are outperforming, with every hedge fund index positive except for global macro. Eurekahedge has reached similar conclusions, finding that 90% of hedge funds beat equity markets in January. Now that investors can’t rely on the bull market to drive nearly every stock price up and stock correlations are falling, hedge fund strategies that had been struggling can once again prove their worth.