market folly

Bank of America Merrill Lynch is out with the newest iteration of their hedge fund monitor report and they highlight that hedge funds suffered heavy losses last week and ended January on a weak note. As such, hedge funds were looking to de-risk and BofA notes that global macro was by far the worst performing strategy for the month of January.

Turning to overall movements, they saw that long/short equity funds pared market exposure down to 29-30% net long, below the historical average of 35-40% net long. Market neutral funds also reduced equity exposure, having been pretty long the two weeks prior.

In terms of specific positioning, hedge funds sold SPX futures last week and even went net short. Additionally, they sold Nasdaq (NDX) futures to move out of a crowded long. Hedge funds also reduced their net long gold position while leaving their net long copper position unchanged. In forex, hedge funds added to their short of the Euro and covered the Yen, reversing the carry trade. Interestingly enough, BofA also saw hedge funds adding to a long position in the US dollar. In interest rate plays, hedge funds still were involved in the highly crowded curve steepener plays.

To see the week over week change, check out the hedge fund exposure levels from last week where we saw that hedge funds were largely selling the S&P 500 and commodities. Embedded below is this week's iteration of Bank of America Merrill Lynch's hedge fund monitor report (RSS & Email readers will need to come to the site to view it):




We've covered more research from Bank of America, so check out their recommendation to overweight stocks and underweight bonds. For more insight as to what hedge funds are investing in, head to the list of top stocks held by hedge funds for a few ideas (or crowded trades if you look at it that way) as well as a look at a possible set of ten investment themes for 2010.