market folly

Bank of America Merrill Lynch is out with the latest edition of their hedge fund monitor report where they examine exposure levels of various hedgie strategies. In it, we see that overall market exposure is high for market neutral funds but well below average for long/short equity funds. This is a continuation of the theme we touched on last week where we saw l/s hedgies reducing equity exposure below historical levels.

Despite having opposing market exposures, both market neutral and long/short funds have performed the best thus far for April. Both strategies have favored small cap stocks and low quality names as the high beta rally carries on. Still though, hedge funds are definitely cautious on equities. Long/short funds are now well below their historical average of 35-40% net long. They currently have about 26-28% net long exposure.

Turning now to major moves across asset classes, we see that hedgies bought gold last week and also added to a crowded long in copper. In energy, hedge funds reduced their crude oil long positions (a crowded trade) and added to their deep short position in natural gas. Across the forex landscape they continued to aggressively sell the Yen, something we've noted for a few weeks now as they show no mercy for the Japanese currency. Lastly, in interest rates, hedge funds are *very* short the long end of the curve and continue to add to crowded shorts there. We just recently posted up a report about how hedgies are net short 10 year treasuries.

Embedded below is Bank of America Merrill Lynch's latest hedge fund trend monitor report:



You can directly download a .pdf here.

Overall, long/short funds continue to ratchet down long exposure in the markets as they pay heed to a possible market correction. This concurs with market strategist Jeff Saut's recent thoughts as he is short-term cautious on the market as well.

Many of the same themes prevail across the hedge fund landscape as hedgies are really short the long end of the curve and still really short the Yen. To see what specific stocks these investment managers are buying and selling, head to our daily hedge fund portfolio updates.