Across the universe of hedge funds that Goldman Sachs covers, the net long exposure to the market reached a record-breaking 52% in Q4 2012 - the most bullish level on record. It would appear, as we noted here [6], that the 2-and-20 crowd of alpha generators have merely been corralled into beta-chasers as, just as they did in the run-up to the 2007/8 highs, their exposure is mirroring the broad market performance. It strikes us that a 'hedge' fund should, in general, be contrarily reducing exposure as the market rises but with turnover of all positions also at record lows it would appear the managers have set out their chips and are all holding on - as the reality of relative returns (in a fickle investing environment) trump absolute returns. Despite low turnover, hedge funds notably reduced holdings of underperforming long-time favorites Apple and gold (lowest holdings since the crisis began) while raising allocations to rallying Financials. Seems like deja vu to us?
Will hedge funds be turning point indicator as they were in 2007? Hedgies are the most bullish stocks on record currently - given their most net long nature...
[7]
as Turnover keeps sliding...
[8]
and GLD holdings are the lowest since the crisis began...
[9]
This positioning heading into the new year does make one wonder whether the low volume algo lift we have been experiencing along with incessant sell-side stratification that 'the rotation is here and its time for retail to step in' was merely to enable the over-exposed to exit on the basis of obviously slowing macro and no fiscal solution...
Charts: Goldman Sachs