Hedge Fund Position Update
In her weekly HF positional analysis, BofA' Mary Ann Bartels (whose recent technical prediitions did not quite pan out) finds that Long Short hedge fund exposure has declined from 25% to 18% as of January 10, well below the 40% average, market neutrals are -3% net short (explaining the ongoing bloodbath in the space), and that macro HFs are long commodities and short US equities and 10 year Treasuries. All in all, exposure continues to be below average bullish levels, yet the market continues to go up. Cue in TrimTabs and let them answer just how is doing the buying.
On Long-Short exposures:
Estimated factor exposures for Long-Short Equity Funds
- Long/Short funds market exposure is ~18% net long, which is likely due to unwinding exposures at year-end. It may take our models several weeks to put up a rotation back to the market.
- Positive inflationary expectations; large cap, high quality and growth tilt.
Significant factor exposure changes since last week
- Long/Short funds switched to high quality tilt from quality neutral.
- Other readings didn’t change much.
Market Neutrals are even more bearish:
Significant estimated factor exposures for Equity Market Neutral funds
- M/N hedge funds market exposure is ~3% net short (below 50 L/50 S).
- Positive inflationary expectations; slight value tilt; size and quality neutral.
Significant factor exposure changes since last reading
M/N hedge funds readings didn’t change much from last reading.
On the other hand, L/S decided to materially cover their Nasdaq 100 short positions:
L/S HFs noticeably covered NASDAQ 100 shorts
Our models indicate that Equity Long/Short (L/S) hedge funds were only slightly short the NASDAQ 100 futures at year-end. They moved to a high quality tilt from neutral while favoring large caps and growth style stocks.
Macro funds were not fans of equities, instead they more than made their money being long gold:
Macros Exposure Analysis
Preliminary readings indicate that global Macro hedge funds went up 3.3% in December and up 8.0% in 2010. In comparison, HFRX investable Macro hedge funds were up 1.4% in December and down 1.7% for the year respectively. Based on our exposure analysis, macros were long commodities and short the US dollar, US equities and 10-yr Treasuries at the end of 2010. They still favor small caps.
Lastly, and as was discussed on Zero Hedge recently, the bulk of the gains in the market in November came on the back of increasing margin, resulting in a leveraged pursuit of beta, a strategy which works until it always blows up spectacularly.
HF leverage, as measured by NYSE Margin Debt, rose to $274 billion in November which is up 1.6% since month-over-month and up 24.0% year-on-year. Leverage does remain below the July 2007 peak of $381billion.
Generally speaking, NYSE margin debt has a positive correlation with the equity market, because investors add leverage as the market goes up and leverage is reduced as the market falls. Although the S&P 500 went down marginally (-0.23%) in November, margin debt rose 1.6% and continued the up-trend since September. In comparison, a very sharp correction for the US equity market from May to June of 13% decreased confidence in the US equity market and margin debt fell 9.8% in May. Margin debt levels were up 2.1% in July and unchanged for August.
- advertisements -