BofAML: Hedge Funds Quadruple S&P 500 Shorts

Sep 8 2015 | 4:48pm ET

Hedge funds more than quadrupled their shorts in the S&P 500 and sold off NASDAQ 100 futures contracts to a net short position for the first time since November 2012, according to data from the latest issue of Bank of America Merrill Lynch’s Hedge Fund Monitor.

The August flash return of BofAML’s global diversified Hedge Fund Index was -1.18%, outperforming the S&P 500's -6.26% over the period, the company also noted.  It was down -1.9% for the week through Sept. 2, driven by a -3.46% drop in equity long/short funds and -1.97% decline in event-driven funds. None of BofAML’s seven substrategy measures were in the green for the period. 

Meanwhile, BofAML’s investable Hedge Fund Composite index was down -2.62% for the quarter through Sept. 2, compared to -5.54% for the S&P 500. Market neutral and CTA advisors have performed the best QTD, up 1.82% and 1.76%, respectively, while event driven funds lead the losers at -5.49% and equity long/short is not much better at -4.47%.

BofAML’s models also suggest market neutral funds brought their market exposure up to flat from 3% net short in the week ended September 2, while equity long/short funds increased to 35% net long from 28% net long. Macro hedge funds, meanwhile, reduced their long exposure to S&P 500, NASDAQ 100 and USD, but held steady their long positioning in 10-year U.S. Treasury bonds. 

Perhaps sensing oversold conditions, macro funds also partially covered their shorts in commodities, and covered shorts in emerging markets to return to a net long, BofAML noted.

CFTC data for the week showed hedge fund capital moving across asset classes. In equities, large specs more than quadrupled their shorts in the S&P 500, and sold NASDAQ 100 to a net short for the first time since Nov. 2012. They slightly increased their shorts in Russell 2000.

In agriculture, they reduced their net long positions in soybeans and corn, and doubled their shorts in wheat. 

In metals, large hedge funds increased their net long in gold, silver, platinum and palladium, and reduced their shorts in copper.

In energy, they increased their long positioning in crude oil, maintained their long in gasoline, and increased their shorts in natural gas.

In FX, hedge funds largely held net short positioning in EUR steady, slashed short positions in JPY, lowered shorts in AUD and MXN, and sold GBP to a net short.

In interest rates, they maintained their net short in 30-yr Treasuries, bought 10-yr. bonds up to net long from long short, but reduced their net long in 2-year bonds. 

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