In its latest Hedge Fund Monitor, BofA's Ankur Singh finds that while hedge funds are willing to be the boats that rise with the central banks' liquidity tide, nobody is willing to fight the Fed in its latest admission that a subset of stocks, mostly those that make up the Russell 2000 index, "appear to be overpriced." As a result, BofA reports that "Specs increased Russell short position to a three year high. MAA and technicals suggest we may have further increase in Russell short positions."
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BofA adds:
Large speculators increased Russell 2000 net shorts to -$4.6bn from -$4.0bn notional last week.
Bearish. Sustaining the move below 1168- 1154 confirms a one-month top and sets up a drop back to the May and Feb. low of 1082. The 1212-1214 area remains key US equity market resistance and the lack of a breakout above this area is a bearish divergence with the S&P 500
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So what does this mean for all hedge fund strategies across the board? It means that for the 6th year in a row virtually every hedge fund index is underperforming the S&P, with Distressed Credit doing the best (+5.3% YTD), Traditional equity long/short up a tiny 2.8% YTD, while Macro funds have finally emerged from the basement and have posted a paltry 0.98% return through the end of June, after being negative largely for the bulk of the year.
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