BofAML: Strong Selling in S&P 500, NASDAQ, Gold, Crude Oil as Hedge Funds Reposition

Jun 15 2015 | 3:00pm ET

Hedge funds lowered long exposure in a broad swath of asset classes during the week ended June 10, according to the latest Bank of America Merrill Lynch Hedge Fund Monitor

The diversified hedge fund index was down 0.49% for the week, underperforming the S&P 500’s 0.1% loss on a price returns basis. Equity market neutral funds led the performance table for the period, up 0.35%, followed by Merger Arbitrage, up 0.36%. Laggards were led by CTAs, down 1.75%, and Macro, down 0.77%.

The large loss for CTAs during the week pulled the segment’s YTD return to a negative 0.83% after a promising start to the year. 

BofAML said that market neutral funds' market exposure decreased to 15% net long from 25% net long. Equity Long/Short market exposure increased to 31% net long from 29% net long, below the 35-40% benchmark level. 

Macro hedge funds, meanwhile, decreased their long S&P500 and NASDAQ exposure. They also lowered their long exposure to the U.S. dollar. However, they decreased short exposure to 10-year Treasuries to move to a nearly-neutral stance. They also lowered short commodities exposure and went further short emerging markets. 

CFTC data for the week showed hedge fund capital moving across asset classes. Equity hedge funds sold S&P500 contracts at the strongest pace in more than three months to increase their net short position to the largest in more than a year. They also sold NASDAQ contracts at the strongest pace in more than a year. BofAML’s indicators suggest the selling may continue.  

In metals, large specs decreased gold longs at the strongest pace in three months, booking the third consecutive week of gold selling. Specs also sold Silver, this time at the strongest pace in more than five years. Here as well, indicators suggest selling may continue.  

In energy, large hedge funds also sold crude oil contracts, decreasing their net long positioning. They bought heating oil contracts for the seventh week out of the last nine, decreasing net short positioning to the smallest since September 2014. BofAML’s indicators suggest crude longs and heating oil shorts should increase.  

In FX, large specs sold the Japanese yen for the third week, increasing net short positioning. Specs also bought euro contracts at the strongest pace in more than a year, decreasing net short positions to smallest so far in 2015. BofAML noted that the trend in the euro is unlikely to continue.  

In interest rates, hedge funds sold 2-yr Treasury contracts for a second week, decreasing their net short positioning. The selling this week was the largest reduction in the last three years, the report said. 

In agriculture, large specs bought corn contracts after nine consecutive weeks of selling. They also bought soybean and wheat contracts. This was the first week in 2015 that all contracts were bought, BofAML noted.  

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