With the market shakeout triggered by Reddit’s retail short-selling apparently subsiding, the market has rebounded over the past six days and hedge funds have improved their performance with increased exposure.
However, as JPMorgan calculated in its overnight report, the total active new positions of long-short equity funds in different regions still fall short relative to the previous huge reduction. In fact, the data show that only 20% (or even less) of the active cuts that occurred last week were added back this week.
In addition, the short positions added in high SI stocks remained quite small this week as the bearish were hit hard by a large number of retail investors (and the hedge funds behind them), which explains the performance of hedge fund longs that have not taken off much in recent days.
A number of other strategic hedge funds with lower returns overall also appear to be quite conservative, with total exposures still a few percentage points below their yearly highs on Jan. 22.
However, global hedge fund net exposure has risen slightly in the past two weeks, up 8% year-to-date, according to JPMorgan Chase. The lack of large-scale capital activity by hedge funds, coupled with a further contraction in market liquidity, has sown some uncertainty in the outlook for equity markets, the analysis noted.
Of course, the improved performance of equity long-short hedge funds is still a good sign. For its part, Littlemore noted that given the market rally and the bank’s high net exposure, performance so far this year is likely to be about the same as a year ago.
So with the market risk not yet fully dissipated, hedge funds are most bullish on which targets? SmallMo makes a statistic.
In EMEA, the banking, auto and technology sectors had the strongest heavy revenue performance over the past week, but all three had slightly negative net income – despite their relatively strong returns.
In Asia Pacific, financials and health care stocks regained their popularity with hedge funds this week, while materials and industrials were the top net buyers.
And in a separate analyst report, Citi analysts warned that short-rolling appears to be driving the S&P 500 further higher.
Citi analysts said that despite the market’s concerns about forced tightening, hedge funds closed nearly $10 billion of short positions in the S&P 500 last week, the highest level since April last year. The data show that there are still $21 billion in short positions and in a loss position.
Citi analysts wrote in a report late Monday.
“Given the large size of the remaining short base, further short tightening is likely to occur over the next one to two weeks, supporting the market rally.”
On the other hand, Citi estimates that with the S&P 500 at 4,000, bulls may be tempted to take profits, which could inhibit further market gains in the near term.
Recent Comments