Hedge Funds Lag S&P 500 in H1 2014

Jul 8 2014 | 1:38pm ET

Hedge funds lagged the S&P 500 in H1 2014, according to the latest Bank of America Merrill Lynch Hedge Fund Monitor.

The BofAML Global Diversified Hedge Fund Index was up 2.1% over the monitored period compared to 6.8% for the broader market index.

Analyst MacNeil Curry said their models indicate market neutral funds increased their market exposure to 18% net long from 15% net long over the monitored period while equity long/short market exposure decreased to 33% net long from 41% net long—below the 35-40% benchmark.

Macro funds reduced their long exposure to commodities, maintained their exposure to the U.S. dollar, increased their long exposure to the S&P500 and NASDAQ and reduced their short exposure to 10-year Treasuries and are now long. They also increased their small-cap tilt and, overseas, reduced their long exposure to EAFE and EM.  

Commodity Futures Trading Commission data shows large equities speculators reduced their S&P 500 shorts, added to their Russell shorts and trimmed their NASDAQ longs. Technicals remain bullish equities, said Curry, while the moving average aggregate suggests coming buying of S&P and Russell contracts.  

Metals increased their gold, silver and platinum longs to a one-year high while reducing their copper shorts. Curry said MAA suggests a coming reduction in gold and silver buying while technicals warn both are close to topping.
Large energy specs reduced their rude and gasoline longs, added to their natural gas shorts and increased heating oil longs. Techs recommend remaining bullish crude, said Curry. Both MAA and technicals are bearish heating oil.  

FX specs increased their British pound and Australian dollar longs. Techs suggest the Aussie dollar is close to stalling while MAA suggests a coming reduction in spec longs.  

Agriculture specs decreased their soybean, corn and wheat longs. Positioning in soybean is at a two- year low whereas wheat and corn have now been sold for eight successive weeks. Both tech and MAA remain bearish.

Interest rates specs covered their 2-year Treasury shorts while increasing their 30-year longs and 10-year shorts. Technicals suggest remaining bearish 10-years while the 2-year is in the topping zone, said Curry.

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