Hedge fund trend watch: long emerging markets, short US equities, says Merrill

Hedge funds look likely to outperform the market for the first quarter of 2007, according to the latest edition of Merrill Lynch’s Hedge Fund Monitor.

Other points of note:

• Equity futures - Large speculators remain significantly net short US equities, despite the rally from recent lows. HFs are still shorting the S&P 500; remain near a crowded short position in the NASDAQ 100; and maintain a record crowded short in the Russell 2000.
• Metals - HFs remain in a crowded short in copper. They modestly added to gold and platinum longs and were flat silver. Readings are neutral pointing to further gains.
• Energy - HFs fully covered their short positions in heating oil futures. They were a steady buyer of crude oil, and mildly added to shorts in natural gas. We expect continued volatility in the energy complex, Merrill added.
• Forex - HFs remain in a crowed short in the US$, and a crowded long in the Euro. They were flat the Yen and (some) positions are still short. Expect volatility to remain in the currency markets, particularly as it relates to the dollar/yen carry-trade.
• Emerging Markets - Macro hedge funds continued to increase their exposure to the emerging and Europe/Australasia/Far East markets after a sharp reduction at the end of the last month. Emerging market exposure now above levels prior to the recent equity pullback globally. Volatility positions are still net short.

http://ftalphaville.ft.com/blog/2007/04/02/3595/hedge-fund-trend-watch-long-emerging-markets-short-us-equities-says-merrill/