market folly

Bank of America Merrill Lynch recently released the latest iteration of their hedge fund trend report. In it, we see that hedge funds in general were adding to equity positions and selling energy stakes. In last week's hedge fund trend report, we saw that hedgies were covering the euro & buying crude oil. Probably the most notable information this time around is the fact hedge funds reversed course on the euro. BofA notes that, "they resumed shorting the Euro back to the deepest crowded levels in over a decade." So, it appears that last time's euro covering bit was purely profit taking.

Given that we track long/short equity hedge fund portfolios the most, let's check in on what they were up to. Their exposure levels dropped from 37% net long down to 30-32% net long and this is below average levels. In terms of specifics, l/s funds were reducing their growth plays relative to value (i.e. they like value stocks). In recent weeks we had seen them aggressively favor small cap names and that trend reversed course back to neutral. Overall though, they still favored high quality names.

Market Neutral funds, on the other hand, increased exposure and went net long. Bank of America estimates that global macro hedge funds also increased US equity exposure last week. Additionally, they were aggressively buying emerging markets. Embedded below is BofA's latest hedge fund trend monitor report in its entirety:



You can directly download a .pdf here.

For more hedge fund related research from BofA, we recommend checking out their list of most concentrated hedgie positions: the hedge fund generals list.