Hedge Funds Continue With Their Dollar Love Affair

Hedge funds are still lagging the market for 2013, although a few famous funds are having a great year. Macro hedge funds now aggressively selling commodities for the first time since January this year. In the FX world, hedge funds continue to buy the dollar a hot trade which we noted recently. The data comes from the latest BAML hedge fund monitor.

Hedge funds are buying the dollar and shorting the Euro


Large hedge funds bought US dollar Index to $2.6bn from $2.1bn notional last week. Readings from BAML show that this is approaching a crowded long. The direction of US Dollar mirrors that of Euro. The US dollar is strong as the euro continues to weaken.

Large speculators partially covered Euro to $3.2bn from $3.4bn notional last week. Readings are neutral. The euro breaks uptrend in place since July 2012 and continues to correct.

Key data from the report below:

Commodities are under pressure as hedge funds sell positions. Macro hedge funds aggressively sold commodities for the first time since Jan’13. Meanwhile, large speculators sold energies across the board.


Hedge Funds are still lagging the market. The preliminary February return for the Global Diversified Hedge Fund index was a gain 0.17%. This compares to the S&P 500 gain of 1.11%. The Investable Hedge Fund weekly index is up 0.65% MTD for March, while the S&P is up 2.63%.

The investable hedge fund composite index was up 0.65% month-to-date as of March 13, compared to a price return of 2.63% for the S&P 500 index. CTA Advisors performed the best, up 1.27%. Market Neutral performed the worst and were flat for the same period. For details, refer to the weekly performance of the investable index and monthly performance data of the Global Diversified Hedge Fund Index.

Examining Hedge Fund positioning by major strategies

BAML models indicate that Market Neutral funds held market exposure steady at 9% net long. Equity Long/Short sold market exposure to 28% from 35% net long, below the 35-40% benchmark. Macros aggressively sold the NASDAQ 100 & commodities, sold 10-year Treasuries, slightly bought the S&P 500, partially covered their shorts in EM & EAFE, and continued to cover their shorts in USD.

Significant HF moves across asset classes based on CFTC data

Equities. Large specs continued to buy the S&P 500 and NASDAQ 100 futures, yet sold the Russell 2000. S&P 500 stays in a crowded long.

Agriculture. Large specs bought soybean and corn, and partially covered their shorts in wheat. Wheat remains within the edge of a crowded short.

Metals. Large specs bought gold & palladium, sold silver & platinum, and were flat in copper. Gold remains in a buy zone. Palladium stays in a crowded long.

Energy. Large specs sold crude oil & heating oil, flat natural gas, and sold gasoline out of a crowded long. Crude remains in a crowded long.

Forex. Large specs partially covered Euro, and added to their shorts in Yen.

Interest Rates. Large specs added to their shorts in 30-year Treasuries, and sold 10-year and 2-year Treasuries.

Large speculators sold gasoline out of a crowded long.