Market Neutral Hedge Fund Exposure Nears 2012 High: BAML

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BAML is out with their latest hedge fund monitor. Last week we noted that hedge fund exposure to NASDAQ 100 was near a record high. This week, BAML’s highlight is market neutral hedge fund exposure, which has increased significantly over the past week. Net exposure for market neutral hedge funds is nearing the peak reached in 2012.

market neutral hedge fund exposure via BAML

Below is some more detail on that topic as well as notable findings in other areas.

Market Neutral hedge fund: estimated factor exposures for Equity

Market neutral hedge fund exposure is ~16% net long, above the average of 50 L/50 S.

Positive inflationary expectations; style neutral; prefer small cap & low quality. Significant factor exposure changes since last reading
Market Neutral funds aggressively increased market exposure to 16% from 11% net long over the past week.

They tilted further towards small caps; other factors are stable.

BAML models indicate that Market Neutral funds increased market exposure to 16% from 11% net long. Equity Long/Short funds reduced market exposure to 41% from 42% net long, remaining above the 35-40% benchmark level. Macro funds partially covered their shorts in the S&P 500, NASDAQ 100 and commodities, marginally covered their shorts in the T-notes, and aggressively sold their long positions in the US Dollar Index. Meanwhile, Macros bought EM to the highest net long since September 2012, while readings in EAFE are the highest since 2011.

The investable HF composite up 1.26% first half of May

The investable hedge fund composite index was up 1.26% month-to-date as of May 15, compared to a price return of 3.83% for the S&P 500 index. Convertible Arbitrage and Event Driven performed the best, up 2.51% and 1.81%, respectively. Market Neutral performed the worst and was down 0.74%.

Significant HF moves across asset classes based on CFTC data

Equities. Large specs bought the S&P 500 & Russell 2000, and were flat in the NASDAQ 100. The NASDAQ 100 and S&P 500 remain crowded longs.

Agriculture. Large specs bought soybeans and corn, while adding to their wheat shorts. Readings are neutral.

Metals. Large specs sold gold & silver, bought platinum & palladium, and partially covered copper. While Gold and Silver are in a buy zone, their price risks remain to the downside.

Energy. Large specs bought crude oil & gasoline, while adding to their shorts in heating oil & natural gas shorts. Crude oil moved back into a crowded long; heating oil remains a crowded short.

FX. Large specs added to their euro & yen shorts but increased their US Dollar Index longs. Readings are neutral.

Interest Rates. Large specs sold 10yr & 2yr Treasuries, but increased 30-yr Treasury longs. 10-yr Treasuries moved to a net short.

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