Hedge fund trend watch: HFs sell equities; buy gold, oil and €

Warning! Despite being published today, this report might already be out of date. But anyway…

Hedge funds remain bullish on equities but are bearish on bonds, according to the latest Merill Lynch Hedge Fund Monitor.

More snippets from the report, covering hedge activity over the past week:

Last week HFs posted negative returns: The Diversified Hedge Fund Composite was -0.66 per cent for the week; 1.83 per cent YTD, while the S&P 500 fell -4.15 per cent in the same period. Hedge fund returns held up well relative to the market return on the week. Year-to-date, M&A Risk Arb (4.6 per cent) and Event Driven (2.7 per cent) are up the most. Managed Futures is the worst
performer on the year (-1.6 per cent) with a current draw-down of -5.3 per cent.

Wiiners and Losers of the week: Convertible Arb was the winner last week with a 1.4 per cent return (2.1 per cent YTD). Managed Futures were the loser for the week with a return of -4.1 per cent (-1.6 per cent YTD).

Equity Futures: Large speculators sold both S&P 500 and NASDAQ futures, and increased their crowded short position in Russell 2000 futures. HFs are still viewed as a source of liquidity for the equity markets

Metals: HFs remain in a crowded short in copper. They added to their gold, silver and platinum positions; readings remain neutral pointing to further gains.

Energy: HFs increased their crude oil long position and covered their heating oil and natural gas short positions. Natural gas readings remain neutral. We expect continued volatility in the energy complex.

Forex: HFs continued adding to their longs in €. They sold the US$ Index and were flat the Yen. Expect volatility to remain.

Interest Rates: The crowded steepening yield curve trade is back. Large speculators remain in a crowded long in the 10-year T-note, but increasing their positions to ~$29.6bn notional. They remain in a near crowded short in the 2-year at ~$11.5bn notional.

Long/Short funds market exposure below average: The exposure of market neutral value funds rose substantially. Market beta remains net long. Other exposures: Small-caps, Low quality and Positive Inflationary expectations. Long/Short funds’ equity is neutral and style tilted to Growth away from Value. Positive Inflationary expectations also increased significantly. They continue to have tilts toward Small-caps and Low quality.

Macro funds buying large caps, short small-caps - Macro funds have increased their exposures to the S&P 500 & NASDAQ, the US$ and the 10-yr US T-note. They are short Small-caps.