FOR IMMEDIATE RELEASE
Hedge Fund Managers Turn Bearish on U.S. Equities According to Survey; Most Managers Attribute Rally in Equities to QE2, While Many Feel Rally Will End When Quantitative Easing Stops
New York, NY – March 7, 2011 – Hedge fund managers have turned bearish on U.S. equities, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for February. About 40% of the 89 hedge fund managers the firms surveyed in the past week are bearish on the S&P 500, up sharply from 26% in January, while only 26% are bullish, down from 37%.
“Bullish sentiment less bearish sentiment is negative for the first time since November,” said Sol Waksman, founder and President of BarclayHedge. Increased caution might owe in part to excellent recent performance. The Barclay Hedge Fund Index has posted a positive return for six straight months.”
About 37% of hedge fund managers are bearish on the 10-year Treasury note, while only 15% are bullish. Bullish and bearish sentiment on the U.S. dollar index are balanced at 31%. Meanwhile, 18% of managers aim to increase leverage in the near term, while only 15% plan to lever down.
“Managers aim to lever up even though they are bearish on both bonds and stocks,” notes Vincent Deluard, Executive Vice President at TrimTabs. “Why? They still have a large incentive to gamble with borrowed money because short rates round to nil. If one of the Fed’s goals was to ignite speculation and greed then it has succeeded famously.”
About 52% of hedge fund managers feel the rally owes primarily to QE2, while 35% cite the end of quantitative easing in June as the biggest threat to the rally. TrimTabs points out that the level of the S&P 500 and the size of the Fed’s balance sheet have exhibited a positive correlation of 88.4% since the start of QE1 in March 2009. Meanwhile, managers are concerned about oil prices. About 24% believe oil is more likely to hit $150 per barrel than the S&P 500 is likely to ascend to 1,600.
“We’ll take the other side of that action,” notes Deluard. “We did see a similar surge to $150 from $100 in 2008, and tension in the Middle East is obviously higher now. But oil spiking to $150 from here represents a move of nearly seven standard deviations, while the S&P 500 climbing to 1,600 represents a move of less than three standard deviations. The market participants who agree with us that concern about sharply higher oil prices is overdone might consider capitalizing by selling long-dated out-of-the-money call options on oil futures.”
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BarclayHedge is a leading hedge fund data vendor and one of the foremost sources for proprietary research in the field of alternative investments. From its origin as a research specialist and performance measurement firm, BarclayHedge has developed complete client services as a publisher, database and software provider, and industry consultant.
TrimTabs Investment Research is the only independent research service that publishes detailed daily coverage of U.S. stock market liquidity--including mutual fund flows and exchange-traded fund flows--as well as weekly withheld income and employment tax collections. Founded by Charles Biderman, TrimTabs has provided institutional investors with trading strategies since 1990. For more information, please visit us here.