Hedge funds shifted their strategies last week by grabbing up WTI crude following the previous week’s record selling. Also Market Neutral and Equity Long/ Short funds trimmed their net long positions, while Macro hedge funds increased their long exposures to key indexes, 10-year Treasuries and the U.S. dollar

Big speculative hedge funds raise short positions

Bank of America Merrill Lynch analysts Jue Xiong and Stephen Suttmeier released the latest edition of their Hedge Fund Monitor report this morning. In equities, they found that large speculative funds upped their short exposure in the S&P 500 and Russell 2000 indexes and cut their long exposures to the NASDAQ 100.

The analysts said large speculators are “positioning for risk off,” as their net positioning as a percentage of total open interest was at the most bullish level in U.S. Treasuries. Further, they said sentiment on this same measure for the S&P 500, gold and gasoline. is close to a three-year low.

They report that Market Neutral hedge funds decreased their market exposure from 24% net long to 17% net long. They’re favoring growth stocks and have apparently switched to a positive inflationary expectation for the first time since the middle of June. (All charts/ graphs in this article are courtesy BAML.)

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

 

2 hedge funds

Meanwhile Equity Long/ Short funds cut their exposure from 55% net long to 53% net long, although that percentage remains higher than the benchmark exposure of between 35% and 40%.

1 hedge funds

Long/ Short funds switched from neutral to value stocks and are neutral on size, quality and inflationary expectations.

5 hedge funds

Marco hedge funds upped their long exposures in the S&P 500, NASDAQ 100, 10-year Treasuries and the U.S. dollar.

6

They also raised their short exposure to emerging markets and the MSCI EAFE Index and "slightly" covered their commodities shorts while also tilting more toward large cap stocks.

7

Energy still taking a beating

Data from the Commodity Futures Trading Commission indicates that while hedge funds reversed their position on crude oil, other energy commodities continued to struggle. Money managers actually started buying WTI Crude contracts last week after selling more than 132,500 contracts in the previous six weeks. According to the BAML team, that was the largest number of contracts sold since they started collecting data in 2006.

However, large speculative funds cut their long positions in crude (from $11.7 billion to $11.3 billion), heating oil, and gasoline. They also slightly upped their short positions in natural gas.

9

10

Short covering continues in NASDAQ

Long/ Short hedge funds also continued covering their short positions in the NASDAQ, pushing them to the lowest level since the middle of June.

4

Large speculators also increased their short exposure to the S&P 500 from -$5.9 billion to -$8.2 billion. According to the BAML team, the key hold level for the index is still at 2040, and if this level is broken, they see a top and possible risk dating back to the lows in the 1980 to 1972 level. For the bullish view to be proven, this level needs to move above the 2120 to 2135 level.

8

CTA, Macro are this quarter's best-performing hedge fund strategies

The BAML team said that so far this quarter through Aug. 5, the investable Hedge Fund Composite index had declined 0.1%. Among the major hedge fund strategies, CTA and Macro funds have been the best-performing. CTA funds have increased 3.52% quarter to date, while Macro funds increased 2.9% in the same time frame. Both hedge fund strategies outperformed the 1.78% gain recorded by the S&P 500 Index.

hedge funds