Hedge Fund Nasdaq Bets Just Shy of 2010 Peak: BAML

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BAML is out with their latest hedge fund monitor. Last week they noted that hedge fund leverage had reached a level not seen since 2007 (the data was confirmed by a report from analysts at SocGen). This week they note that funds are reducing their exposure to equities but positions still remain at high levels.

Hedge funds reduced their long S&P 500 positioning by ~21%; from $22.4bn to $17.8bn. Positioning remains in a crowded long after reaching a record high in March 2013 (data is from 1997).

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NASDAQ 100 hedge fund positions Large speculators increased their long NASDAQ 100 exposure to $8.2bn from $7.9bn notional. Readings moved back into a crowded long and are just shy of their all time highs set in Q4’10.

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Russell 2000 Large spec positions Large speculators reduced their net long Russell 2000 position to $1.8bn notional. Readings are neutral. Data extends back to 1994.

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Rise in Hedge Fund Composite Index

The investable HF composite up 0.93% month-to-date The investable hedge fund composite index was up 0.93% month-to-date as of May 8, compared to a price return of 2.20% for the S&P 500 index. Convertible Arbitrage and Event Driven performed the best, up 1.29% and 1.19%, respectively. Market Neutral performed the worst and was down 0.42%.

BAML models indicate that Market Neutral funds increased market exposure to 11% from 10% net long. Equity Long/Short funds increased market exposure to 42% from 41% net long; remaining above the 35-40% benchmark level. Macros funds added to their S&P 500 and T-notes shorts, maintained their shorts in the NASDAQ 100, and marginally reduced their commodity shorts and US Dollar Index longs. Meanwhile they remain indecisive about EM but continue to build their long EAFE exposures. EAFE net long positions are the largest since the October 2012 highs.

Significant HF moves across asset classes based on CFTC data Equities. Large specs sold the S&P 500 & Russell 2000, but bought the NASDAQ 100. The NASDAQ 100 and S&P 500 remain crowded longs. Agriculture. Large specs sold soybeans, bought corn, and added to their wheat shorts. Readings are neutral.

Metals. Large specs sold gold, marginally sold platinum & palladium, bought silver, and partially covered copper shorts. Gold and Silver are in a buy zone. Energy. Large specs bought crude oil, marginally added to heating oil shorts and were flat in gasoline. They continued to unwind natural gas shorts. Heating oil remains a crowded short. FX. Large specs added to their Euro & Yen shorts but reduced their US Dollar Index longs.

Large speculators added to their Yen shorts, increasing their positioning to – $9.9bn from -$9.1bn notional. Positioning is neutral. USD/JPY remains bullish following the 1st close above 100 in 4yrs.

Interest Rates. Large specs aggressively reduced 30yr & 10yr Treasuries from a crowded net long, and continued to unwind 2-yr Treasury longs.

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The post above is drafted by the collaboration of the Hedge Fund Alpha Team.

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