“This reversal is striking,” says Sol Waksman, founder and President of BarclayHedge. “Hedge fund managers were meaningfully bullish on domestic stocks in only one month in the first half of the year. Our research shows that hedge fund sentiment is a decent leading indicator, so the shift could help support stock prices in the near term.”
Managers remain very sour on long-dated Treasuries. Bearish sentiment on the 10-year note edged lower to 42% in July from 44% in June. Bullish sentiment sank to 12%, the smallest share in more than seven months, from 18%. Meanwhile, managers remain modestly bullish on the U.S. Dollar Index. Additionally, 16% aim to lever up in the near term, while 11% plan to deleverage.
“Hedge fund managers have been net bearish on the long end all year even though the 10-year yield plunged to 2.88% in June from 3.75% in February,” notes Minyi Chen, Vice President of Quantitative Research at TrimTabs. “Meanwhile, it does not surprise us that managers remain inclined to lever up because performance has been lacking. The Barclay Hedge Fund Index shows a return of just 1.1% in the first half of the year.”
About 68% of hedge fund managers describe the valuation on the S&P 500 as fair or cheap, while 32% feel it is rich. Meanwhile, when asked to choose the most overbought item from a list that included oil, gold, U.S. equities, U.S. Treasuries, and European equities, 36% of managers picked gold. Only 4% chose European equities.
“That result surprises us,” says Chen. “The precious metals flow data we track daily does not scream bubble, and speculative traders had much larger net long positions on gold futures in August and December of last year. Meanwhile, European equity ETFs boast a huge year-to-date inflow of 23.6% of assets That’s a lot of money chasing an asset that posted a negative return of 5.1% in the past three months.”
The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis. The TrimTabs/BarclayHedge Hedge Fund Flow Report provides detailed analysis of these flows as well as relevant topical studies. Click here for further information.
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.