Latest Hedge Fund Positioning: Exposure Monitor Report

Bank of America Merrill Lynch is out with the latest rendition of their hedge fund monitor report. Last week we took note that hedge funds had increased short exposure yet were still suffering poor performance. The May performance numbers for many hedge funds were terrible, and June wasn't a ton better for many. In June, distressed credit funds were down 1.66% and long/short equity funds lost 1.09%. So, how have hedge funds positioned themselves lately after such poor performance?

Long/short equity hedge funds continue to have low net long equity exposure at around 27% net long. This continues to be well below the historical average of 35-40%. L/S funds still slightly favor growth stocks over value at the moment. And while these hedge funds have favored high quality stocks for quite some time, this exposure is volatile and some funds have reduced exposure in this regard recently. Market neutral funds, while as of late they've taken opposite positions of L/S funds, are now flat in terms of equity exposure. Global macro hedge funds on the other hand have reduced emerging markets exposure and covered their short position on US indices. You'll recall previously that we highlighted how global macro funds were net short equities and they certainly banked on that trade.

Based on CFTC data, however, other hedge funds (large speculators) have added to their short positions in both the S&P and Russell 2000. Bank of America Merrill Lynch highlights two recent hedge fund portfolio moves of note. Firstly, they point out that hedgies are now in a crowded long in the Japanese Yen. Secondly, they highlight the net short position in Nasdaq futures that many speculators have put on.

To see the latest hedge fund exposure levels, view the full monitor report from BofA embedded below:



You can download a .pdf copy here.

You can also view previous exposure reports where we saw hedgies increasing short exposure. So while hedge funds clearly are having a hard time with this tape, market strategist Jeff Saut says that the answer is in risk adjusted stock selection and risk management, two solutions he lists as keys to portfolio success in 2010. We'll continue to monitor the latest hedge fund exposure levels to see who is able to generate some alpha out there.

Stock Market Technicals: Bearish Engulfing Pattern Is Cause For Concern

It's been a while since we last took a look at the market's technical picture so today we're highlighting MarketClub's latest market analysis video. In it, they highlight a signal that has typically preceded strong market declines. They're currently cautious on the stock market and derive this stance from two signals: a bearish candlestick pattern that just emerged as well as a strong level of support that's about to be broken. You can see their latest analysis in the video.

Let's first focus on the negative candlestick pattern they've identified. MarketClub pulls up a weekly chart of the Nasdaq and notes a negative/bearish engulfing line, a pattern whereby the previous bar is completely eclipsed to the downside. This marks a temporary top around the 2,350 level in the Nasdaq. This is important because they point out this same pattern signaled a sell-off in early May. If that's not enough to elicit concern, they point out another previous time where this pattern preceded a decline. Back on October 15th, 2007, a bearish engulfing line marked the beginning of what would be a massive downtrend during the financial crisis.

Turning next to support levels, MarketClub identifies 2,200 on the Nasdaq as a key place to keep an eye on. If it closes below that on a weekly level, the market is most likely headed lower. Throughout May and June, this level has been tested to the downside numerous times and looks like it is on the verge of breaking. Lastly, they highlight that their proprietary trade triangle indicators are signaling a negative trend, thus suggesting a cautionary stance on the markets. You can view their stock market technical analysis by clicking the video below:

Chase Coleman's Tiger Global Shows Large Put Positions on Market Indexes: 13F Filing Q1 2010

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund filings.)

Next up is Chase Coleman's hedge fund Tiger Global. Coleman is considered a 'Tiger Seed' because he previously plied his trade under mentor Julian Robertson at legendary fund Tiger Management. He then became one of the many managers Robertson seeded in an effort to recognize up and coming talent. Coleman is also one of the many managers selected to be in the Tiger Cub portfolio created with Alphaclone where you can piggyback the investment ideas of numerous top hedge fund managers (Market Folly readers can receive a free 30-day trial if interested).

The positions listed below were Tiger Global's long equity, note, and options holdings as of March 31st, 2010 as filed with the SEC. All holdings are common stock unless otherwise denoted:


Brand New Positions
Powershares QQQ Trust (QQQQ) Puts
SPDR S&P 500 (SPY) Puts
Electronic Arts (ERTS)
Electronic Arts (ERTS) Calls
Apollo Group (APOL) Calls
Liberty Global (LBTYA) Calls
Nike (NKE)
Genpact (G)
Kraft (KFT)
Liberty Capital (LCAPA)
American Tower (AMT)
Commscope (CTV)
Live Nation (LYV)
Duoyuan (DGW)
Amazon (AMZN)
Lincare Holdings (LNCR)
Shanda Games (GAME)
Madison Square Garden (MSG) ~ spin-off as a result of their stake in Cablevision
Symetra Financial (SYA)
Berkshire Hathaway (BRK.A)


Increased Positions
Western Union (WU): Increased position size by 577%
Liberty Global (LBTYA): Increased by 204.6%
Hewlett Packard (HPQ): Increased by 200%
Apple (AAPL): Increased by 62.2%
Lockheed Martin (LMT): Increased by 45%
Google (GOOG): Increased by 35%
Apollo Group (APOL): Increased by 30%
Mercadolibre (MELI): Increased by 24.6%
Discovery Communications (DISCK): Increased by 23%


Reduced Positions
Yahoo (YHOO): Reduced position size by 79.8%
E*Trade Financial (ETFC): Reduced by 46.7%
Mastercard (MA): Reduced by 35%
Monsanto (MON): Reduced by 34.6%
Transdigm Group (TDG): Reduced by 34.1%
IAC Interactive (IACI): Reduced by 28%
Cablevision (CVC): Reduced by 25.7%


Positions They Sold Out of Completely
Qualcomm (QCOM)
McDonalds (MCD)
IMS Health (RX)
Teradata (TDC)
Ebix (EBIX)
Discovery (DISCA)
Gushan Environmental (GU)


Top 15 Holdings (by percentage of assets reported on 13F filing)

1. Powershares QQQ Trust (QQQQ) Puts: 9.0%

2. Apollo Group (APOL): 8.32%

3. DirecTV (DTV): 7.87%

4. Pepsico (PEP): 5.96%

5. Apollo Group (APOL) Calls: 5.39%

6. Google (GOOG): 4.47%

7. SPDR S&P 500 (SPY) Puts: 4.45%

8. Mercadolibre (MELI): 4.06%

9. Lockheed Martin (LMT): 3.51%

10. Electronic Arts (ERTS) Calls: 3.41%

11. Mastercard (MA): 3.34%

12. Priceline.com (PCLN): 2.93%

13. Apple (AAPL): 2.80%

14. Liberty Global (LBTYA): 2.75%

15. Visa (V): 2.42%

Alright, there's a lot to cover here. The most noteworthy thing to take away from Coleman's portfolio is the fact that in the first quarter he started massive put positions on the Nasdaq-100 (QQQQ) and S&P 500 (SPY). These could merely be hedges, or they could be a directional bet, we don't know. What we do know though, is that these are very sizable positions. These puts are likely already profitable positions for the fund as well (that is, unless for some reasons they purchased the puts at the lows in February, which seems unlikely).

Tiger Global was quite active in options markets in the first quarter as they also started a large new position in Apollo Group calls. This is a complement to their already large position in common stock of the company as well, making it by far one of their biggest company specific bets. Additionally, we point out their large stake in DirecTV (DTV) because in Tiger Global's fourth quarter letter, Coleman indicated that this was one of their highest conviction picks as they believe that DTV will increase leverage to buyback shares and then their cashflow will cover current debt.. Tiger has also built up a sizable long position in Electronic Arts (ERTS) via common shares and calls.

Regarding positions they decreased, Tiger sold nearly 80% of their Yahoo (YHOO) position and almost half of their E*Trade Financial (ETFC) position. While TIger Global added significantly to their Western Union (WU) stake, the position is still not very large in the context of their overall portfolio. Other positions they notably added to in the first quarter include Hewlett Packard and Liberty Global.

Assets reported on the 13F filing were $4.9 billion this quarter. Data from the SEC is aggregated and sorted automatically by Alphaclone, our source for hedge fund tracking, replicating, and performance backtesting (Market Folly readers can receive a special free 30 day trial). Remember that these filings are not representative of the hedge fund's entire base of AUM.

This post is part of our daily hedge fund portfolio tracking series. We've already detailed activity from numerous managers so click the links below to be taken to the respective portfolio updates: Seth Klarman's Baupost Group, Warren Buffett's Berkshire Hathaway, Stephen Mandel's Lone Pine Capital, and Bill Ackman's Pershing Square, David Einhorn's Greenlight Capital, Eddie Lampert's RBS Partners, David Tepper's Appaloosa Management, Mohnish Pabrai's Investment Fund, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Bruce Berkowitz's Fairholme Capital Management, Andreas Halvorsen's Viking Global, Dan Loeb's Third Point, and John Paulson's hedge fund Paulson & Co. Be sure to check back daily for new hedge fund updates.

Key Technical Levels in the Markets

Adam over at MarketClub has put out a quick video on technical levels in the markets. Basically, he points out that there's no denying we're still in an uptrend. But at the same time, it never hurts to have an exit strategy and back-up plan in place should the markets turn sour. After all, stop-losses are one of the most useful tools in financial markets. Here's the video:



He highlights key levels in the major markets and draws the line in the sand as follows:

Dow: 9,835
S&P 500: 1,044
Nasdaq: 2,100

So, all you have to do is keep an eye out for those levels which mark the most recent lows in the market. It's not rocket science, it's simply monitoring the trend. Until those levels are taken out to the downside, the trend remains up.

Nasdaq Crosses Major Trend Line (NDX)

The guys over at MarketClub just highlighted an interesting fact: the Nasdaq just crossed a major trend line. Check out their Nasdaq technical analysis here. One of the most basic tools in technical analysis is drawing a trend line on the chart. To do so, all you need is to connect 3 points. Then all you have to do is buy/stay long as long as the trend remains. Once it breaks, get out/go short. As they say, "the trend is your friend"... until it isn't. In this case, the Nasdaq has broken it's current trendline as evidenced by the chart below:



This trend line has been in tact for almost 11 months now. The longer the trend line is, the more important it becomes. MarketClub makes special note of this because the momentum appears to have slowed down. Using fibonacci retracements, they've outlined a downside target of 1,796 or even 1,691 which would imply quite a large correction. Head here to watch their Nasdaq video.