Risk On: Hedge Funds Quest For Performance

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This Post Originally Appeared on Mott Capital Management’s Blog

S&P 500 Continues Its Surge To 2,600

The S&P 500 continues to run higher, with the index surging to nearly 2,530. It is now about 70 points from our year-end target of 2,600 which has to make you wonder if 2,600 to low? Fund managers also continue to badly underperform the broader S&P 500 index, which is pushing the risk-on trade. 

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Funds Are Far Behind

Most hedge funds continue to underperform the broader index by a relatively wide margin. The Eurekahedge North American Hedge Fund Index was up by only 6.1 percent through the end of September, still severely underperforming the S&P 500 Total Return and the S&P 500 Index., which are both now up by nearly 15 and 13 percent respectively.

^SPXTR Chart funds continue to trail

^SPXTR data by YCharts

Hot Sectors- Risk-On!

The industries that are moving are the Techs, Biotech, and Financials, which have been on fire the past few days. The NASDAQ Biotech ETF ($IBB) is now up nearly 28 percent, while the Technology Select SPDR ($XLK) is now up by nearly 23 percent. The Financial Select Sector SPDR ($XLF) is up about 12 percent, but a lot of that move has come only in the last month. The iShares PHLX Semiconductor ETF ($SOXX) is now up nearly 30 percent on the year. 

^SPXTR Chart

^SPXTR data by YCharts

Small Caps Surging Too!

The small-caps are starting to run with the Russell 2000, making a monster move higher since bottoming in mid-August. The Risk-on trade is happening right now in a huge way.
S&P 500 Total Return Funds under perform

^SPXTR data by YCharts

Money In, Money Out

The money is rotating right out of the risk-adverse groups, like Gold ($GLD), Utilities ($XLU), Consumer Staples ($XLP) and Treasuries ($TLT), and moving into the risk-on sectors, and that is good for rising equities. 

Funds Playing A Game of Catch-up

It tells of investors and fund managers that are severely underperforming the markets, and are desperately trying to make the underperformance narrow. If the market is to continue to rise, it is because the Tech, Biotechs, and Semis are leading the market higher and for no other reason. 

A Run To 2,600

If these sectors aren't performing, then the S&P 500 will be going nowhere. If you want to know which direction the broader market is headed, watch the best performing sector, wherever they go, the rest of market will be sure to follow. 

Disclaimer: Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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