BAML is out with their latest hedge fund monitor. The key point this week is that despite hedge funds taking on more leverage, Long/Short funds are still not overweight equities. BAML estimates that Long/Short hedge funds exposure at 28% net long, below the 35-40% benchmark. Hedge funds are not yet at overbought levels and this supports further upside for the US equity market.
Furthermore, BAML models indicate that Long/Short hedge funds switched to growth style from value, tilted further toward high quality, while maintaining size neutral. In addition, they maintained their shorts in the NASDAQ 100.
The investable HF composite up 0.32% month-to-date
The investable hedge fund composite index was up 0.32% month-to-date as of April 11, compared to a price return of 1.54% for the S&P 500 index. Convertible Arbitrage and Merger Arbitrage performed the best, up 1.36% and 0.97%, respectively. Macro performed the worst and was down 0.16%.
Examining Hedge Fund positioning by major strategies
BAML models indicate that Market Neutral funds sold market exposure to 4% net long from 7% net long. Equity Long/Short bought market exposure to 28% from 25% net long – still below the 35-40% benchmark. Macros sold the NASDAQ 100 and 10-year Treasuries, slightly bought the S&P 500, flat USD, and sold commodities to flat. In addition, they partially covered their shorts in EAFE and added to their shorts in EM.
Significant HF moves across asset classes based on CFTC data
Equities: Large specs sold the S&P 500, Russell 2000, and NASDAQ 100. NASDAQ moved out of a crowded long; S&P 500 stays in a crowded long.
Agriculture: Large specs sold soybean & corn, and added to their shorts in wheat. Readings are neutral.
Metals: Large specs were flat gold & silver, sold platinum & palladium, and slightly added to their shorts in copper. Palladium moved out of crowded long; gold & silver remain in a buy zone.
Energy: Large specs sold crude oil, heating oil & gasoline, and partially covered natural gas. Crude oil moved out of a crowded long; Heating oil is approaching a crowded short zone .
FX: Large specs sold USD, partially covered Yen & Euro. USD remains in a crowded long.
Interest Rates: Large specs added to their shorts in 30-yr Ts, bought 10-yr Ts, and sold 2-yr Treasuries. 10-yr is approaching a crowded long.