Hedge Fund Shorting Soars To Highest Level In Three Years

Jul 11 2007 | 8:27am ET

Hedge funds are making big bets against the Standard & Poor’s 500 after a months-long market rally sputtered in June.

A Merrill Lynch report shows that “large speculators” have pushed short interest in S&P500 futures to its highest level in three years. The short bets were valued at some $45 billion for the week ending July 3, according to the Hedge Fund Monitor report authored by analysts Mary Ann Bartels and Shan Hasnat.

By contrast, short interest on the Russell 2000 fell to its lowest level in at least five years, the report said.

In spite of “crowded levels” of shorting, Bartels and Hasnat argue that hedge funds are barking up the wrong tree.

“We view this as a contrary indicator and reading continue to be bullish for stocks,” they wrote in the report.

Short-biased funds were among the top performers in June as they take advantage of a 1.66% decline in the S&P500, according to a pair of major indices. The strategy has otherwise taken a beating this year as the index has soared almost 7% in its first six months.

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    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…