All In: Hedge Funds Are The Most Levered Since 2014

Having been violently whipsawed in the past 3 months by soaring market volatility, and having notched only mediocre returns in recent months, analysts had assumed that hedge funds had substantially taken down their leverage especially now that traditional, momentum-chasing strategies no longer work. It turns out that nothing could be further from the truth.

According to the latest JPM Prime Finance portfolio update, Gross Leverage for the aggregate cash and synthetic Prime Finance portfolio rose +1.34% last week (Table 1) and is now at the highest level since 2014. As further shown, only Convertible bond Arb, High Grade Fixed Income and to a small extent, Market Neutral funds showed a decline in gross leverage in the past week.

Some more observations:

For traditional, Equity Long/Short funds, gross leverage rose by +0.98% while net exposure fell by -0.50% (Fig. 2). Gross and Net Leverage are close to the highest since Jan 2012.

For Equity market neutral funds, gross leverage fell by -0.14% while net exposure fell by -2.13% (Fig. 3). The gross
leverage is now also close to highest since Jan 2012 while the net is close to median since Jan 2012.

Looking at North American sentiment expressed by hedge funds, the Long/Short Ratio of the US equities book weakened over the past week (Fig.4) to its 33rd percentile YTD.

Net selling WoW was in the top 5th percentile YTD (Fig.5) driven by sharp increase in short selling (highest WoW YTD

Finally, a look at sector positioning is revealed in the following charts of YTD trading activity across all NA sectors. Financials saw strong WoW buying while Info Tech and Materials saw strong WoW selling; Meanwhile, most inexplicably, energy selling continues despite WTI rising to just shy of $70.



The Real Tony JibjeResearch Thu, 04/26/2018 - 16:42 Permalink

It's not easy when you don't have all the insider information. The central bankers usually have the playbook and know what 99 percent of the people without insider information will do and then they do the opposite. I think ever since Trump got elected the central bankers main mission is now to fleece all the day traders. Before Trump was elected the mission of the central bankers was to fleece all the short sellers.

In reply to by JibjeResearch

The Real Tony Thu, 04/26/2018 - 16:37 Permalink

I thought all the hedge funds went insolvent thanks to the central bankers rigging the stock market higher while everyone on planet Earth except the central bankers and corporations (who were told by the central bankers to buy back their shares because we the central bankers are going rig the shit right out of the markets) were either short the market since 2009 or in cash.

Chaotix Thu, 04/26/2018 - 17:08 Permalink

Hedge Funds are hedged with high risk faulty hedges, that are insured and hedged with other sour funds, funded by junk bonds, leveraged with stale derivatives, and calculated with a central bank supercomputer. But when all else fails, the PPT has their back (on our dime, of course)