Hedge funds are levering up in the new year to levels not seen in eight years or more.
Leverage among long/short equity hedge fund managers is higher now than at any point since at least 2004, according to Morgan Stanley. The increasing friskiness of hedge fund managers—who largely missed out on last year's stock-market rally—can also be seen in margin debt offered by New York Stock Exchange brokers, which hit a nearly four-year high in November.
Gross hedge-fund leverage was 153% in the week ended Jan. 4. That's up 10% from a year earlier and from the industry's eight-year average and 1% from last year's average.
It's clear that hedge funds and other market players are confident that stocks will continue to rise this year: Long bets on Standard & Poor's 500 Index futures hit a nearly four-year high at the beginning of the month.
"Indicators are bullish and equity hedge funds are jumping on the bandwagon, thinking now is a good time to have more exposure to the market," Barclays hedge fund consulting chief Anurag Bhardwaj told Bloomberg News. "That's a good thing for the market overall."